Capital Gains Tax
If you’re a basic rate tax payer, CGT on buy to let second property’s is charged at 18% and if you’re a higher or additional rate tax payer it’s charged at 28%. With other assets, the basic-rate of CGT is 10%, and the higher-rate is 20%.
If you sell your buy-to-let property for profit, you will usually pay CGT if your gain is higher than the annual threshold of £12,000 (for the 2019/20 tax year). Couples who jointly own assets can combine this allowance, potentially allowing a gain of £24,000 (2019/20) to be made in the current tax year.
You can reduce your CGT bill by offsetting costs like Stamp Duty, Solicitor and Estate agent fees or losses made on a sale of a buy to let property in a previous tax year by deducting these from any capital gain.
Any gain from the sale of your property, should be declared on your Self Assessment tax return for that tax year and will be included when working out your tax status for the year which push you into a higher bracket.
The oncome you receive as rent is liable for income tax. This should be declared on your Self Assessment tax return for the tax year it was earned in.
This might be taxed at 20%, 40% or 45%, depending on your income tax band.
You can offset your rental income against certain allowable expenses, for example, letting agent fees, property maintenance and Council Tax.
Mortgage Interest Tax Relief
The rules around mortgage interest tax relief are changing. This will mean relief for finance costs on residential properties will be restricted to the basic rate of Income Tax.
Finance costs includes mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.
Previously, you were able to deduct all of this interest on your mortgage from your rental income before tax was paid.
The amount of your interest payments you’re able to deduct is being reduced by 25% a year until 2020 and being replaced by a 20% tax credit for the entire amount.
|Tax Year||% of interest payments eligible for Mortgage Interest Tax Relief||% of interest payments eligible for 20% tax credit|