What You Need To Know About Property Tax

Whether you're looking to buy your first home, have multiple properties that you rent out or are preparing to sell a house, if you're buying any kind of property you'll be required to pay a form of tax in the UK.

We explore the types of property tax, whether landlords pay more tax on rental income and what SDLT is and why we pay it, in our latest blog;

What is property purchase tax?

Property purchase tax, as the name suggests, is the tax you pay to the UK government based on the price of the property you're buying. Property taxes are calculated using the value of the property which includes both the land and the building/s on it.

Whether you're buying a flat, house, bungalow or commercial property, you'll pay tax on the purchase which is known as Stamp Duty Land Tax in England, or Land Transaction Tax in Wales. If you're buying a buy-to-let property, you'll also need to pay another kind of tax

What is the tax on a buy to let property?

If someone chooses to rent out their property as a landlord, they're essentially running a business and gaining extra income from their property which means they'll need to file their annual self-assessment return.

If a property owner chooses to sell their buy-to-let property, they'll also then need to pay a different kind of tax called capital gains and its percentage is based on how much they earn.

Capital gains tax for a basic-rate taxpayer is at 18% on any growth in value that the property has enjoyed. For a landlord paying a higher rate of tax, it's 28% and if you're a basic rate taxpayer, bear in mind that the gain will be added to your income, so this could push you into a higher-rate band.

What Is SDLT or Stamp Duty Land Tax

Stamp Duty Land Tax (SDLT) is the name given to the one-off tax people pay when they buy a house in England over the Government threshold of £125,000. The percentage of tax you pay then goes up depending on how much the property is.

For example, a tax break down for a property sold for £300,000 would be 0% for the first £125,000, 2% on the next £125,000 and 5% on the last £50,000. To help encourage more people to buy their own homes, the UK government changed the threshold for first-time buyers so they don't have to pay SDLT on anything under £300,000. Anything over £300,000 will have stamp duty applied to it.

If you're buying a second property or home, the stamp duty land tax in England will start at £40,000 and is at a higher rate of 3%.

If you're looking to buy a residential property through a company or collective investment scheme, as many landlords do, the rate is 15% over £500,000. The government recognises this kind of property purchase as being bought by 'non-natural persons' which just means a company instead of individuals.

Land Tax In Wales and Scotland

Whilst stamp duty only applies to property in England and Northern Ireland, Scotland and Wales have their version of land tax that people have to pay when they're buying.

Anyone buying a property in Scotland will pay Land and Buildings Transaction Tax known as LBTT which is staggered in percentage based on the value of the property, just like in England. The rate starts at 2% for properties over £145,001 and there's a discount for first-time buyers up to the first £175,000

If you're buying a house in Wales, you'll pay Land Transaction Tax or LTT, which is 3.5% on the portion over £180,000 up to and including £250,000 then 5% between £250,000 and £400,000.

Offering Specialist Advice

If you're looking for advice on tax, need further assistance with any matter relating to capital gains tax or want to find out more about our probate services involving properties and estates, why not speak to our friendly team today.

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