There were only two main taxes that concerned property investors before April 2016:
1. Capital Gains Tax (GCT)
The one that most people think about is their property investment capital gains tax (CGT) liability.
In simple terms, this is the tax that you’ll have to pay on the profit you make when you sell your investment property. However, as we know, the taxman doesn’t like to make things easy, and so there is a whole raft of rules that complicate the calculation.
Fortunately, these mostly reduce your tax bill on the sale of an investment property.
2. Income Tax
The second tax that affects you as a property investor is income tax.
When your total tax liability is calculated for any particular year, your rental income will be added to your personal income (for example any salary or pension income). If your total income is below the threshold for higher rate tax, then you will pay income tax on the income from your investment property at the basic rate of income tax. If it takes you into the higher rate tax bracket, then your income will incur tax at the higher rate.
Before the tax changes came into force, property investors were able to offset the interest on a buy-to-let mortgage for their investment property against the gross rental income from the property. For higher rate tax payers this is particularly advantageous, as it effectively meant a 40% relief on mortgage interest payments.
The tax changes that have come into force from April 2016 have changed all of these income calculations and have affected the amount of tax you pay on a property investment.
3. A word on ‘Death’ or inheritance tax
I am going to ignore this tax, but it’s worth exploring if you are concerned, older, want to pass your wealth onto your kids but since nothing has changed for this tax at this stage I have left it out.
Here’s to minimising your tax!
We are examining these two taxes in more detail in my latest book, UK Property Tax. We also look at all the tax deductibles that you will still be able to use to reduce your tax bill. Get your free copy of the book by clicking the download button below.
As always… get a got tax planner to help you avoid as much of this tax as possible.
Live with passion and fun,