Tax Considerations for Landlords

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26 March 2019 Tax

It is important to always ensure that you are tax-compliant, particularly when you are a landlord in a position of responsibility. There have been some fairly recent changes made by the Government, which mean that landlords must re-evaluate their approaches to taxation. In this article, we explore some of the new regulations that landlords must be aware of.

Stamp Duty Land Tax (SDLT)

This landlord tax regulation applies to England and Northern Ireland and commenced in April 2016. It means that anyone buying a secondary property (i.e. one that they will not personally be residing in, or one that is not their primary address) will be obliged to pay an additional 3% stamp duty. This only stands if the property itself is bought for over £40,000.

The previous system was a proportional tax, meaning it would increase alongside the property price. Initially, you wouldn’t have to pay Stamp Duty unless you bought a property for £125,000. Even then, when a property reached £1.5 million you would still only pay 12% in Stamp Duty. Now, you have to pay an extra 3% on top of all this.

However, people purchasing properties are now able to have 36 months between selling and replacing their main residence, rather than 18 months, without having to pay the new higher rates.

Land and Buildings Transaction Tax (LBTT)

This is Scotland’s answer to the SDLT and the LBTT replaced it in Scotland from April 2015. A further development in April 2016 saw the Additional Dwelling Supplement come into effect, where any additional residence purchased from January 2019 will be taxed an extra 4%.

Properties up to £145,000 will not pay any tax. However, there are taxes above this amount:

Between £145,001-£250,000, you pay 2% tax
Between £250,001-£325,000, you pay 5% tax
Between £325,001-£750,000, you pay 10% tax
Anything above £750,000, you pay 12% tax

Land Transaction Tax (Wales)

This is a replacement for Stamp Duty and is a levy paid on all properties purchased that are over Â£180,000:

For purchases between £180,001 and £250,000, there is a 3.5% tax rate.
For purchases between £250,001 and £400,000, there is a 5% tax rate.
This steadily increases until the maximum amount, where properties that are bought for £1.5 million or more have a tax rate of 12%.

Capital Gains Tax

With any profit made by a landlord on the sale of a property that is not their own residence, there is, as it stands, a 28% capital gains tax. However, this rate often changes so it is worth seeking advice on this and possibly contacting an advisor who provides landlord tax services.

Restriction of Allowable Costs

Landlords can claim relief for financial burdens on a property, such as mortgage interest. The tax relief is currently available at 40-45%, dependant on what tax rates you are paying. However, by April 2020, this will be lowered to the basic income tax rate of 20%.

Changes to Wear and Tear Allowance

Under this act, landlords can lawfully deduct any costs from the tenant’s deposit incurred on removing and replacing damaged furniture, appliances and household items in fully-furnished homes.