Property Buying Guide

Buy to Let Advice: The Tax Situation

If you take out an interest-only mortgage on your buy to let property, the mortgage repayments are tax deductible - another reason why this type of mortgage is the one most common in this area. Tax deductible means an expense that is subtracted from your gross income from the property, so that the amount of your income that is liable to tax is reduced.

You are also eligible for tax relief on: rental insurance; property maintenance; letting agency fees; the costs of any professional advice sought after you've bought the property; and, if applicable, ground rent and service charges. Also, 10 per cent of the annual rental income is offset to cover the depreciation in the value of furnishings, sofas, carpets, and so on (but not fittings such as a fitted kitchen or bathroom suite), cleaning, insurance policies on plumbing cover, white goods and gas boilers, accountants' fees, letting agents' fees and advertising. A tax advisor can help you complete your tax return form.

You will, however, have to pay tax on your rental income. You will also be charged Capital Gains Tax when you sell the property, at the highest rate of income tax, unless you can demonstrate that it is your primary residence. To do this, you may need to have been resident there for a certain period of time. Capital Gains Tax is applied to the increase in value of the propert yat a flat rate since October 2007. The new rules do away with taper relief, although CGT remains payable however long you own the property. So, for example, if you buy a flat for £100,000 and sell it for £150,000, your gain would be £50,000 and you would be taxed on this. We recommend you seek good tax advice.

If you already complete an Inland Revenue self-assessment tax return, you can read the section that gives guidance on capital gains. If you need to obtain the relevant pages to complete, the guide tells you where to get them. Contact your local tax office if you don't usually complete a form and ask them to forward the relevant pages. To minimise the effect of Capital Gains Tax it is wise to get sound tax advice from the beginning.

More buy to let advice:

Buy to let – for first time buyers and everyone  lHow much can you borrow? l Buy-to-let mortgages  lThe hidden costs l Finding a suitable property l Your responsibilities as a landlord l Letting agents l Tenants l Furnished and unfurnished properties l Buy-to-let useful websites l Buying Property Abroad 

Useful Links: 

www.arla.co.uk  
www.cml.org.uk
www.landlords.org.uk
www.direct.gov.uk  
www.rics.org.uk