Buying, selling and renting a property in London can involve various costs. Although some expenses are more obvious such as moving itself, some others can often come into question. One common query we receive from our clients is what kind of tax do I need to pay? As well as other questions regarding taxes owed after a sale. So, read on as we at Rickman Properties explain…
Stamp Duty Land Tax
Stamp Duty Land Tax (SDLT) is paid when buying freehold and leasehold properties. If you are a first-time buyer, you do not have to pay SLDT when the property costs up to £300,000. For the rest of the buyers, from October 1st 2021, the tax has to be paid if a property costs over £125,000.
The SLDT includes a surcharge for second home buyers as well as non-residents. Some cases where this tax might not be payable are when the property is transferred in court due to separation or divorce and if the home is a gift (and no outstanding mortgage is owed).
There are some aspects of SLDT that are considered outdated. Some homeowners and buyers want a Stamp Duty Reform. Click here to know how this might affect the London property market.
Related Article: Stamp Duty Tax (SDLT) and the Possibility for Reformation
Capital Gains Tax
When it comes to property sales, Capital Gains Tax (CGT) is charged at 18% for standard rate taxpayers and 28% for higher rate taxpayers. It is important to highlight that this tax is payable on any profit earned on the property minus your CGT allowance.
You don’t have to pay this tax when selling (or disposing of) your home when the following apply (as if they do, you automatically receive Private Residence Relief):
- If you’ve lived in the property as your main home for all the time you’ve owned it;
- If you haven’t let part of it out or used part of it for business only;
- If the grounds and its buildings are smaller than 5,000 square metres.
Income Tax on UK property for landlords
Renting a property in London is a great business. But don’t forget, renting your property does mean that you have to consider Income Tax. Since 2020, tax relief for finance has been restricted and is now 20%. As a landlord, you can deduct some expenses before the tax bill is calculated: mortgage interest costs, maintenance costs, letting agents’ fees, insurance premiums, council tax and utility bills.
Other requirements need to be considered for those paying tax on rent on behalf of landlords who are abroad. For non-resident landlords, if the weekly rent exceeds £100, the tax has to be deducted by the letting agent or by the tenants before paying their rent. Non-resident landlords can ask to have their rental without tax deducted if: their UK tax affairs are up to date, they have never had any UK tax obligations, and they do not expect to be liable to UK tax for the tax year in which the application is made.
Annual tax on enveloped dwellings
The Annual Tax on Enveloped Dwellings ( ATED) is a tax you need to pay when holding a high-value UK residential property. The annual tax is payable mainly by companies that own UK residential property valued at more than £500,000.
Properties that are not classified as a dwelling include hotels, guest houses, boarding school accommodations, hospitals, student halls of residence, military accommodations, care homes and prisons.
A small percentage of estates are large enough to incur Inheritance Tax (IHT). However, it’s important to consider this when making your will.
For more detailed information about taxes to pay when buying, selling or renting a London property, Rickman Properties can help! Contact us today on 020 7937 9777 or email us at email@example.com