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What tax do landlords pay?

Friday, 17th January, 2020

There have been recent changes to the tax landlords pay and what tax relief is available. Below we outline the tax rules for landlords that you need to be aware of with your buy-to-let property.
Land & Buildings Transaction Tax (LBTT) - Scotland
Since 1 April 2015 Land and Buildings Transaction Tax (LBTT) replaced UK Stamp Duty Land Tax (SDLT) in Scotland.
Under LBTT, properties worth up to £145,000 will not pay any tax. For sales between £145,001 and £250,000, a tax rate of 2% is applicable with a rate of 5% between £250,001 and £325,000. Between £325,001 and £750,000, the rate will be 10%, with a top rate of 12% applying to all transactions above £750,000.
From 1 April 2016, an Additional Dwelling Supplement (ADS) was introduced above the current LBTT residential rates was introduced for anyone purchasing an additional residential property (that is not their only or main residence) for £40,000 or more. It was originally introduced at a 3% rate but Scottish Government increased the ADS rate to 4% which came into force for property transactions that took place on or after 25 January 2019.
Restriction of Allowable Costs
All landlords with residential property inside or outside the UK are allowed to claim relief for finance costs such as mortgage interest incurred on the property they let. Tax relief is available at 40% and 45% for landlords paying tax at the higher and additional tax rates. However, this tax relief will be restricted to the basic rate of income tax (20%) by April 2020 and started being phased in gradually by the Government from April 2017.   
Changes to Wear and Tear Allowance
In April 2016, the Wear and Tear Allowance for fully furnished properties in the UK was replaced with a relief that enables all landlords of residential houses to deduct the costs they actually incur on replacing furnishings, appliances and kitchenware in the property. The relief given will be for the cost of a like-for-like, or nearest modern equivalent, plus any costs incurred in disposing of the old item, or less any proceeds received for, the asset being replaced. 
Capital Gains Tax
Landlords are likely to have to pay Capital Gains Tax if they make a profit when they sell a property that’s not their home such as a buy-to-let investment. In the last 10 years, there have been many changes to how Capital Gains Tax is charged. Currently, the rate applicable to gains made on the sale of a property is 28% and this amount is payable irrespective of whether a landlord intends to reinvest these gains.        
To understand these issues further get in touch with your accountant or an independent tax advisor.   
HMRC Online Tax Training
HMRC offer an online training course and run regular webinars to provide help and guidance for landlords with their tax requirements. Here you'll be able to access past webinars and sign up for future ones.
The training covers:
Property Income
How to work out profit or loss
HMRC are also running a 'Let Property Campaign' that gives landlords the opportunity to bring their tax affairs up to date and to get the best possible terms to pay the tax you owe. For full details on this campaign and eligibility criteria please visit the campaign website. 
If you are landlord looking to let contact us today to ensure you let your property the most tax efficient way as employing the right agent can help you make the right choice of property.


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