Property Taxes: A Guide For Landlords
Are you a landlord finding property taxes complicated?
If you’re a new landlord in Crystal Palace, you may find property taxes complicated and overwhelming. At Your Home Managed, we are ready to give you some expert advice to help you better understand your obligations.
Adding Income From Property To Other Income
There’s a common misconception that any rental income you earn from your rental property in Crystal Palace will be taxed separately from your other income from shares or employment.
However, that isn’t the case. While your property expenses and income are recorded in a separate area of the Self-Assessment form, your profit is added to your other income to work out your total tax bill.
For that reason, it’s always sensible to calculate your likely property expenditure and income figures annually before investing in property. That will enable you to check whether your profit will likely take you into the next income tax bracket.
Another thing to remember is that additional income you receive from the property may mean you can no longer receive benefits such as tax credits or child benefits.
Recording Your Expenses
When completing a tax return, you should remember that some allowable costs can be deducted from the income you receive from your rental profit to reach your taxable profit amount. However, renting out your property and the money you spend on it are split between two categories.
You can offset “Revenue Expenditure” against the income you receive from your rental property. These expenses must have been exclusively incurred to earn rental income, for example:
- Maintenance services like gardening or cleaning
- Business administration costs
- Repairs and redecoration
- Insurance
- Fees for any professional services (e.g. an accountant or lettings agent).
“Capital Expenditure”, on the other hand, is subtracted from your capital gains when you decide to dispose of your property. Those are things which increase the property’s value, for example:
- Adding an extension.
- Upgrading the kitchen.
- Carrying out major renovations.
Of course, some works include both expenditures, making recording expenses more complicated. Therefore, it’s wise to use an accountant’s services.
Higher Capital Gains Tax
Although tax is levied at 10% (at basic rate) or 20% (at higher rate) on your chargeable gains on your other financial assets, tax on gains from residential property is levied at 18% or 28%, depending on your tax band.
You need to factor this in when planning the exit strategy for your property investment.
Capital gains tax is levied on the difference between your property’s original purchase and sale prices, with allowable deductions and personal allowances subtracted. It isn’t charged on how much equity you have remaining.
Therefore, if you decide to remortgage the property at some point to release capital, you should always ensure you have sufficient equity remaining to cover your CGT bill should you suddenly need to sell.
Need Help With your Property Taxes?
Handling the financial side of your rental property can be a challenge, but you can rely on our expert team at Your Home Managed to simplify the day-to-day management of your property. As experts in the Crystal Palace rental market, we make it easy for local landlords to maximise their investment.
For more advice on property taxes and property management services, get in touch with us today on 0208 125 7780 or email info@yourhomemanaged.com.
Frequently Asked Questions About Property Taxes for Landlords
1. Do I pay income tax on my rental income?
Yes, rental income is considered taxable income in the UK. You'll need to report your rental income and expenses on your self-assessment tax return.
2. Can I deduct all my property expenses from my rental income?
Not all expenses are deductible. You can generally deduct "revenue expenditure," such as maintenance costs and insurance, but not "capital expenditure," such as the cost of a new kitchen.
3. Do I pay Capital Gains Tax (CGT) when I sell my rental property?
Yes, you'll usually have to pay CGT when you sell a property. The tax rate depends on your income tax band and whether you own the property jointly.
4. How can I minimise my property tax bill?
To minimise your property tax bill, ensure you're claiming all allowable expenses, consider using a tax-efficient mortgage, and seek professional advice from an accountant.
Property To Let? Rental Property Management in Crystal Palace For Landlords
At Your Home Managed, we are your local property management experts in Crystal Palace. If you need an expert letting agent, property management services or simply advice, our experienced team can help.
Call us today on 0208 125 7780, book a valuation or browse our letting and property management services.
