To name a few, stamp duty land tax (SDLT) when you buy properties, income tax on your rental profits, capital gains tax when you sell a property. Then you have the inheritance tax if you die and wish to leave your wealth to your loved ones.
Income tax can very easily consume 45% of your rental profits, the Capital gain tax could take up to 28%, and the inheritance tax could eat up to 40% of your property
portfolio. However, the good news is that all these taxes can be mitigated to some extent with good tax planning.
Income Tax Planning for Landlords
As most of you know, rental profits attract income tax; however, unlike other businesses, your earnings are not subject to national insurance.
If you do not have other taxable income, then some or all your rental profit may be tax-free, due to your personal tax allowance.
If you have an income from other sources and fall under a basic tax rate, then some or all your profits from the rental income will be taxed at 20%.
However, most landlords have a full-time job or have other business interests which produce taxable income. If you are a higher-rate taxpayer, then you are likely
to pay a 40% tax on your rental profits.
Rental income, in some cases, may result in other unforeseen tax consequences. One example: if your total taxable income goes above £50,000, then you may lose
child benefit which could be taken away. If your taxable income goes over £100,000, then your personal allowance will be withdrawn too.
Landlords with a taxable income which is more than £150k will pay 45% tax on their rental profits.
Rental profits can be taxed quite heavily. However, you can mitigate your tax liability with good tax planning.
British Landlord Association members have access to tax support; they have access to an accountant for free tax advice, and they have access to the award-winning “Go Simple Tax” platform.
This blog does not constitute, or is intended to offer legal advice; you should seek professional advice from an accountant or a lawyer for your particular situation.
If you are not a member of the British Landlords Association. Membership is free, why not join us today?
Source: British Landlord Association
Author: Simon Hampton
Date: 2nd of October 2020