Tax implications

Income Tax

  • 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.