Tax rules that affect property investors, buy-to-let landlords and homeowners that short-let

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Whether you’re a primary homeowner who lets out their property while they’re abroad for three months of the year, or a property investor with a large portfolio, it’s important to stay on top of the tax laws which apply to you. Investing in buy-to-let is a complex web of tax relief, capital gains and stamp duty, so you may need a financial advisor to guide you through.

Of course, your legal obligations will be different if you’re a full time landlord or a part time Airbnb host. Here are some tax rules and recent changes you should be aware of to help you plan for your tax return.

Stamp duty land tax

Most people buying a property are liable to pay stamp duty, unless you are a first time buyer investing in your first property. The current SDLT threshold is £125,000 for residential properties and £150,000 for non-residential land and properties. When investing in any property, especially for buy-to-let purposes, you’ll need to calculate the stamp duty payable and factor in this cost.

Capital gains tax

This is only likely to affect property investors with a portfolio when selling properties. You’ll need to pay capital gains tax on the growth in value of the property, and the amount varies. If you’re a basic rate taxpayer you’ll pay 18% on buy-to-let properties while higher rate taxpayers can expect to pay 28% on the value added.

Tax relief on mortgage interest

If you’ve bought a second home with the primary reason to rent it out on a short or long term basis, then you’ll need a specific buy-to-let mortgage. These come with higher interest rates than standard homebuyer mortgages, however landlords can sometimes claim back some of this interest paid on their tax return. Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs. Make sure you are claiming as much tax relief as possible – the amount depends on your personal tax bracket.

If you rent a room in your own home and earn more than £7,500 per year you will have to declare this with HMRC. You will also need to declare your income made from property if you rent out a fully furnished apartment or home. You can do this through a personal tax return, which will include any other earnings you have. Once you have submitted all of your annual earnings and expenses (including insurance, utility bills, repairs), you will be told how much tax is payable.

Always check with an accountant if you’re not sure what taxes you are responsible for. If you are advertising your property online then checks can be easily made against landlords and hosts so don’t risk getting a hefty tax bill.

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