This buy-to-let tax guide will equip you with a comprehensive understanding of critical buy-to-let taxes in the UK, helping you maximise profits.
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Are you a professional landlord with a well-established rental property portfolio? Or are you just renting out your property as a side hustle? Does it often feel your investment isn’t generating enough rental income and your tax liabilities are skyrocketing?
Whatever your situation is, you know that landlord accounting is a huge responsibility, more so because of mortgage interest and letting relief. It’s easy to feel overwhelmed by myriad rules and regulations. Don’t worry – we’re here to help!
Property taxes that
landlords must know
To thrive as a landlord and stay in the right books of HMRC, you need a qualified accountant to rely on. The good news is – our landlord accountants are here to ensure you don’t overpay taxes, meet all deadlines, and are able to take advantage of the many tax-saving strategies offered by the government.
Stamp Duty Land Tax (SDLT)
This is the tax charged whenever you purchase a commercial or residential property.
Stamp Duty Land Tax (SDLT) regulations have undergone significant changes in recent years, making professional advice essential for even simple property and land purchases. With a top SDLT rate of 17%, unexpected fees can be costly. But our team stays current on relief options, such as those for first-time buyers and multiple property owners, to minimise surprises and maximise savings.
Our comprehensive tax advice, tailored to your individual circumstances, is made possible through close collaboration with our other tax specialists. Contact our landlord accountants to determine the best tax structure for you, whether you’re a property developer, private individual, business, or charity.
How we can help
Reliefs for Buying Residential Property
Where available, multiple dwellings relief (MDR) can offer significant savings. Our team has helped many clients reduce their SDLT bill or reclaim overpaid SDLT by identifying opportunities to claim MDR. We also advise on the application of First Time Buyers’ relief.
Partnerships and Companies
HMRC has been increasing enquiries into corporate purchases of residential property over £500,000 to establish whether the 15% flat rate of SDLT applies. If you’re under HMRC enquiry or unsure of your position, we can help.
We also provide advice on the impact of transferring property to connected companies and the SDLT implications of business restructures involving the transfer of property. Complex rules may apply when moving property in and out of partnerships, even if there’s no cash paid for the transfer.
3% Surcharge on Additional Dwellings
This area can be complex and a significant proportion of residential property purchasers require advice on whether the surcharge applies. Our factsheet outlines the rules. However, if you need further advice, please get in touch with us.
Developers and Landowners
This area can be complex and a significant proportion of residential property purchasers require advice on whether the surcharge applies. Our factsheet outlines the rules. However, if you need further advice, please get in touch with us.
Frequently Asked Questions (FAQs)
1. What does SDLT apply to?
Stamp Duty Land Tax (SDLT) is levied on land transactions in England and Northern Ireland based on the price paid or, in some cases, the market value. A “chargeable interest” refers to any acquisition of land, including not only freeholds and leases but also interests, rights, and powers over land (excluding exempt interests such as mortgages and licences to use land).
2. Will I incur the 3% additional dwelling surcharge if I’m buying a house with a granny annex and do not currently own any residential properties?
If a “subsidiary dwelling” is purchased along with a main house, it is exempt from the 3% surcharge as long as the smaller dwelling is valued at less than one-third of the total purchase price, is part of the same transaction as the main dwelling, and is located on the grounds of the main house. Despite this exemption, there may still be a chance to avail multiple dwellings relief, which can reduce the overall SDLT amount.
Value Added Tax (VAT)
This is the tax (usually 20%) charged on the goods and services you utilise on property refurbishments.
As a property investor in the UK, VAT is a crucial aspect to consider, regardless of whether your property is commercial or residential and whether you rent or buy it for sale. You may have basic questions such as how to avoid paying VAT, whether VAT must be paid on rent, or when commercial property is exempt from VAT, but the answers can be complex and dependent on various factors.
How we can help
VAT has various rates that may apply to property investment businesses, such as the standard rate of 20%, the reduced rate of 5%, the zero rate, and exemption. The following explains the different types of businesses that have various VAT rates applicable:
VAT and residential rentals
The majority of landlords don’t have to worry about VAT since residential rentals are exempt from it. This applies to all types of residential rentals, including single-let, HMO (House in Multiple Occupations), and Rent2Rent.
However, serviced accommodations are not exempt, as they are considered holiday accommodations and thus subject to the standard VAT rate.
VAT on serviced accommodation
Serviced accommodation is subject to a 20% VAT charge as it is considered a taxable supply. If your business exceeds the VAT registration threshold of £85,000 for the 2022/23 tax year, you are required to register for VAT.
Businesses selling below the VAT registration threshold are not required to register, but they may choose to do so voluntarily.
This allows them to reclaim input VAT paid to suppliers. However, this extra VAT charge may also make customers less likely to purchase, so voluntary registration may not always be beneficial.
VAT on new residential development
The VAT on new residential development is a zero-rated supply, allowing you to reclaim the VAT paid to suppliers for the development work. However, the rules surrounding this can be complex, and eligibility for zero rating requires careful consideration.
To be eligible, the supply must be the first grant of a major interest in dwellings, relevant residential properties, or relevant charitable properties. A major interest is defined as either a freehold or a lease exceeding 21 years.
The construction of dwellings, student housing, and care homes typically qualifies for zero rating. For example, if you spent £1.2 million on a property development project and incurred £200,000 in VAT, you can claim back £200,000 from HMRC.
Commercial property and VAT
The sale of a freehold in a new commercial building is subject to standard VAT at 20%. For example, if you sell a newly built office building with freehold, you must charge 20% VAT.
However, leases of commercial properties or older commercial buildings (more than three years old) are not taxable unless an “option to tax” election is made.
Owners of exempt supplies of commercial land or buildings have the option of changing the status to standard-rated through the “option to tax” selection.
This allows the landlord to recover VAT paid on regular expenses and building work from HMRC. The option is made on a building-by-building basis, not on an entire property portfolio.
If you purchase a new commercial building for £1 million with standard VAT of £200,000, you may choose to make the “option to tax” selection to recover the VAT paid.
However, if you plan to rent the property, choosing “option to tax” requires you to charge VAT on the rent. The tenants will only pay VAT if they can recover the amount as input VAT.
For example, tenants who run taxable supply businesses like catering can recover the VAT, while tenants who run non-taxable supply businesses like pharmacies cannot. So, choosing “option to tax” should be done carefully.
VAT on commercial to residential conversion
The conversion of commercial properties to residential properties is zero-rated, allowing you to reclaim the VAT paid on the construction work.
Examples include converting a pub to flats or a factory to residential property. The conditions for zero rating are similar to those for new residential developments.
VAT on residential conversion (change in the number of dwellings)
When the conversion of a residential property changes the number of dwellings, it qualifies for a reduced rate of VAT at 5%. This applies to qualifying services for residential conversion, for example converting a three-bedroom house into two flats.
VAT on HMO conversion
The conversion of a single occupancy dwelling into a multiple occupancy dwelling (HMO) is eligible for a reduced VAT rate of 5%. To qualify for the reduced rate, planning consent and building control approval must be obtained.
Frequently Asked Questions (FAQs)
1. How should I minimise VAT on property transactions?
Applying Transfer of Business as a Going Concern transfer of business as a going concern (TOGC) provisions to commercial property purchase from sellers who opted to tax can reduce VAT and SDLT. For residential property development, not registering for VAT if sales are zero-rated, but registering can help claim back input VAT if the property is not for rental purposes. Converting a commercial property into a residential property can eliminate VAT on purchase by filling VAT1614D form. Contact Golding’s landlord accountants for more info.
2. Do I need to charge VAT while selling the whole of my property business?
When selling an entire property business, VAT is not required to be charged (under certain conditions). This type of sale is referred to as TOGC and means that the seller is not responsible for charging VAT on the properties being sold. If you’re confused, get in touch with our landlord accountants.
Capital Gains Tax (CGT)
This is the tax charged when you dispose of your commercial or residential property; set at 10%, 18%, 20%, and 28% depending on the taxable income and the type of asset you’re selling.
The sale of property can be an exciting event. But it’s important to consider the tax implications that come with it. At Golding Accountancy, we offer assistance with Capital Gains Tax to help ensure that the sale of your property doesn’t come with any unexpected financial surprises.
Our services include calculating your Capital Gains Tax liability before you sell, which is crucial information to have. Our landlord accountants can provide you with an estimate of your tax liability and discuss your options to help minimise it. In the event that you have already sold your property and there is tax to pay, we can conduct a CGT calculation and submit a report to HMRC within 60 days of completion of the sale.
Beyond just CGT, we also take a comprehensive look at your property income and capital gains in the context of your overall tax situation. By doing so, we can identify opportunities to keep your tax bill under control and help you make the most of your investment.
Our technical expertise in ownership structures and business models can be especially helpful for landlords with multiple properties who are looking to take letting seriously as a business. We can provide guidance on how to structure your investments to take advantage of tax benefits and maximise your profits.
Contact our landlord accountants now if you reside in the UK, have a rental property, and are contemplating its sale. We can assist in minimising your tax liability.
Frequently Asked Questions (FAQs)
1. How do I report and pay CGT?
UK residents are required to report the sale of residential properties and pay Capital Gains Tax within 60 days of completion of the sale, provided there is a tax liability.
2. Can I avoid Capital Gains Tax?
While it’s not possible to entirely avoid Capital Gains Tax, there are certain circumstances where you may be able to reduce it. For instance, if you jointly own a property with a partner who has not utilised their CGT exemption for the relevant tax year, transferring the property into joint names before selling it may help.
However, the different income levels of each partner must be considered, as one partner may be subject to a higher rate of CGT. It’s important to be cautious when carrying out such transfers, as HMRC may challenge the transaction under anti-avoidance rules if it’s done just before a sale.
Additionally, any income received after transferring the property must be declared on each spouse’s tax return, which could increase the amount of income tax paid. Finally, there may be costs associated with transferring the property into joint names that must be considered.
Non-Resident Landlord Schemes
This is a scheme to tax the UK rental income of those residing in a property outside the UK, also known as non-resident landlords. Obligations on the tenant or the letting agent are imposed.
The Non-Resident Landlord Schemes (NRLS) is the UK tax collection mechanism for non-resident landlords who receive rental income from their UK properties. UK letting agents or tenants collect and pay basic rate tax to HMRC on behalf of non-resident landlords, but tax deduction is not required if HMRC approves the landlord to receive rental income gross.
Letting agents and tenants must register with HMRC, account quarterly for tax payable, complete an annual information return, provide a certificate to non-resident landlords, and keep sufficient records to demonstrate compliance. Deductible expenses should be calculated and reported on profits of the landlord’s business.
The NRLS is how HMRC collects tax from non-resident landlords who receive UK rental income. UK letting agents deduct 20% tax on rental income and pay it to HMRC quarterly. Non-resident landlords can offset the tax against their tax liability.
Letting agents and tenants must register with HMRC and calculate tax on rental income. Deductible expenses can be deducted from rental income. Letting agents must provide an annual information return and a tax certificate to the landlord.
Frequently Asked Questions (FAQs)
1. What are my obligations as a landlord under the Non-Resident Landlords Scheme?
There are no specific obligations unless you opt to receive the rental income without deduction of tax at source by either your tenant or a letting agency. You can register to receive the rental income without tax being withheld by the tenant or a letting agency if you have never had any UK tax obligation, if your total taxable income for the year is less than the personal allowance for the year, or if there is another reason you are not liable to pay UK tax in that financial year. In these situations, you would simply need to report your rental income and any related expenses by filing a UK self-assessment tax return.
2. What expenses can I offset under the NRLS?
You are able to offset the tax deducted from the rental income you receive with genuine expenses, when you complete your self assessment tax return.
The expenses must be directly related to the property and incurred as part of buying and letting the property and appropriate expenses include mortgage interest, repairs to the property, letting agent costs, legal fees, accountant fees, services such as cleaners or gardeners, services such as electricity and water if they are paid by you, and any property management fees. Your accountant will be able to guide you on applicable expenses to offset against your tax.
Let Property Campaigns
This scheme offers an opportunity for landlords who owe tax to the government through letting out residential property in the UK or abroad to get up-to-date with their tax affairs.
The Let Property Campaign allows individual landlords who let out residential property in the UK or abroad to disclose any undeclared income and settle their tax affairs on favourable terms. Landlords must make a voluntary disclosure to HM Revenue and Customs (HMRC) to report any outstanding tax on their rental income.
To participate in the campaign and receive favourable terms, landlords must notify HMRC of their intention to do so and settle their outstanding tax balance within 90 days. They can disclose previously undeclared rental income taxes to HMRC through the Let Property Campaign.
This includes those renting out single or multiple residential properties, renting to students or workers, renting a room above the Rent a Room Scheme threshold, living abroad and renting in the UK, living in the UK and renting abroad, or renting out a holiday home.
However, companies, trusts, and those renting out commercial properties are not eligible for this scheme. Those unsure if they need to disclose can use a questionnaire for guidance. Speak to our landlord accountants for clarity.
Frequently Asked Questions (FAQs)
1. What will happen if you should disclose but choose not to?
Residential landlords who have evaded tax are being targeted by HMRC. Using their data on property rentals in the UK and abroad, along with other customer information, HMRC will identify those who may have unpaid taxes. Failure to disclose voluntarily now may result in increased penalties or criminal charges if discovered later.
2. How much is the penalty rate for the Let Property Campaign?
The penalty rate ranges from 0% to 30%. If you failed to register for a Self Assessment tax return but can demonstrate that you did not intend to hide your property rental information from HMRC, you may face a lower penalty of around 10%.
Our director tax return service is built
WITH LANDLORDS IN MIND
Don’t worry;
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Meet Anthony Burrell - our property tax expert.
The reason we’re so confident about delivering the best possible service to our landlord clients is because of him! Anthony is FCCA-qualified, and has been in the profession for close to three decades.
He has expertise in various taxes related to the property sector, including Stamp Duty Land Tax (SDLT), Capital Gains Tax (CGT), Value Added Tax (VAT), income tax, tax-efficient structures and strategies, non-resident landlord schemes, and many more!
If he and his team are looking after your accounts, you can take a breath and de-stress. No one understands UK landlord accounting better than them!
Support that a Golding buy-to-let
accountant offers
Prepare HMRC-compliant accounts and tax returns, so you don’t have to. Sit back and let us do the job!
Maximise the tax reliefs, expenses, and deductions you can claim. Why should this business be so stressful?
Strategise the most tax-efficient way to purchase and manage your rental property.
Advise on the investment of your rental income and the best ways to offset your mortgage.
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Are you a professional landlord with a well-established rental property portfolio? Or are you just renting out your property as a side hustle? Does it often feel your investment isn’t generating enough rental income and your tax liabilities are skyrocketing?
Whatever your situation is, you know that landlord accounting is a huge responsibility, more so because of mortgage interest and letting relief. It’s easy to feel overwhelmed by myriad rules and regulations. Don’t worry – we’re here to help!
The kind of landlords
we work with
Regardless of whether you are a landlord with a small studio apartment or an extensive property portfolio comprising thousands of homes, a competent accountant can help you save both time and money. And we deliver brilliant results.
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I have used Golding Accountancy for several years now to sort out my property tax. Being completely ignorant in this area I have always relied on them to help me through this minefield and explain things along the way. They always take time to answer my questions and I have been more than happy with their service over the years. Particular thanks to Anthony Burrell for his patience!
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Ian, Anthony and the rest of the team at Golding are helpful, professional and friendly. The team have completed my self assessment each year swiftly and efficiently without a hitch, they are always on hand to answer questions and provide advice regarding my accounts. Golding has also provided help and assistance when I re-mortgaged (twice) when my mortgage advisor asked me for information I didn’t even understand. Golding Accountancy go the extra mile and I would recommend them 100% for anyone looking for an accountancy firm.
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I have used Golding Accountants since January 2017 for my Sole Trader accounts & Tax Returns. Initially with Ian Butler and subsequently with Anthony Burrell, both have been extremely professional in their approach.
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Keep up to date with the latest information for landlords
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Dealing with HMO rentals can be a bit complex, especially if you have multiple sources of income or multiple properties. Unsure yourself? Read this blog:
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Email at info@wearegolding.com or give us a ring on 01268 330600
Email at info@wearegolding.com or give us a ring on 01268 330600
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