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Property investment – how much tax will I need to pay?

April 17th 2017
By: Melanie
Property investment – how much tax will I need to pay?

Despite the recent tax changes to the buy to let industry property can still give good returns on an investment. If you have some money to invest and would like to know more about how much tax you would need to pay on a BTL then here are a few aspects you will need to take into consideration.

Firstly think about whether you will let out a property as a company or as an individual, as this decision will affect how much tax you will need to pay on income and profits. Since the recent changes for landlords many landlords have realised the benefits of running their BTL as a limited company. 

It’s important to understand that your profits from your rental property will be added to any other income you receive, so the amount of tax you will need to pay will be based on your own individual tax code. Each year you will need to complete a self-assessment tax return – the tax your pay on your rental income will depend on your tax banding, 20% for basic taxpayers, 40% for higher rate and 45% for additional rate.

There are many different ways in which the government views on-going expenses to running a rental property particularly when it comes to refurbishment, maintenance and improvements, so it’s really important to seek advice on this.

Always make sure that you consider that there could be future tax changes, which might not make your BTL as attractive in years to come.

Another consideration is whether you plan to hold onto a property and rent it out or whether you plan to do it up and sell it on straight away. If you are selling a property which is not your primary residence you will have to pay capital gains on any profit minus estate agents and solicitors fees. For the tax year 2016/2017 you will be able receive an allowance of £11,100 on top of your personal income tax allowance. If the profit on your investment property is greater than £11,100 you will pay either 18% or 28% depending on your tax bracket.

If you would like some individual advice on how much money you could be expected to pay in tax on an investment property then why not pop into your local branch of Intercounty or call our team on 01279 655243.