- You are liable to pay income tax on the rental income you receive
- Tax can be charged at your highest marginal rate of income tax – either 20% or 40%
- There are allowances you can offset against income tax. Take your rental income and deduct the following:
o Interest payments on your buy-to-let mortgage (but NOT capital repayments)
o Mortgage arrangement costs
o Maintenance costs (such as painting and decorating)
o 10% a year depreciation of furniture value
o Cleaning costs
o Ground rent, service charges and buildings insurance, where applicable
o Advertising the property
o Letting agents fees
o Accountants fees
o 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 CGT allowance. If your property is held in joint names with a spouse or partner, you can add your allowances together.
- If the property was formally your main residence (your home), you are exempt from CGT if you sell within 3 years of it becoming a rental property.
- If the property was never your main residence, you are liable for full CGT.
- For a complete guide to CGT visit the HMRC website.