Income tax
You are liable to pay income tax on the rental income you receive. Tax will be charged at your highest marginal rate of income tax - either 22 % or 40%.
There are allowances you can offset against income tax. Take your rental income and deduct the following:
Interest payments on buy to let mortgages (but not capital repayments).
Mortgage arrangement costs
Maintenance costs (such as painting and decorating).
10 per cent a year depreciation of furniture value.
Cleaning costs.
Ground rent, service charges and buildings insurance, where applicable.
Advertising the property.
Letting agent's fees.
Accountant's fees.
Insurance policies on white goods, gas boilers and plumbing cover.
Capital Gains Tax (CGT)
When you come to sell the property, you will be liable for CGT on the gain.
You have a personal capital gains tax allowance. If your property is held in joint names with a spouse or a partner, you can add your allowances together.
Any net taxable gain in the year is added to your total income from other sources in the year to determine the tax band applicable.
If the property was formerly your main residence (your home), you are exempt from capital gains tax (CGT) if you sell within three years of it becoming a rental property.
If the property was never your main residence, you are liable for full CGT for the first three years. After that the proportion of tax charged is tapered for the next seven years. There is a reduction of 5% after three years, increasing by 5% each year to a maximum of 40% of the gain, after 10 years. This equates to effective tax rates for higher rate taxpayers of 24%, and basic rate taxpayers of 13.8%.
Buy to Let Mortgage Legal Requirements
As a landlord, you have certain responsibilities other than buy to let taxes. Some of the following are buy to let legal requirements, others come highly recommended.
Inform your mortgage lender that you are intending to rent out the property.
Inform your insurance company that you are letting the propert - you may need to get a different buildings and/or contents policy.
Health and safety: you must have a gas check and maintenance check carried out by a Corgi-registered technician once a year. A tenant can demand to see a current certificate.
You must meet berr.gov.uk's fire and furnishings regulations. For example, all sofas must be manufactured to fire-retardant standards. For further details of buy to let legal requirements and fire & safety advice, visit
direct.gov.uk).
Make sure electrical fittings are in good order. Take care to ensure that all wiring and plug sockets are checked properly by a qualified electrician.
You must take out references - a bank reference to make sure the tenant can pay the rent and a personal/employer reference to check that they are of good character and won't damage the property.
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