Considering selling your buy-to-let property?



Are you considering selling your buy-to-let property as a result of the withdrawal of landlord mortgage tax relief? The Association of Residential Letting Agents (ARLA) reported in 2018 that there are strong market indications that upwards of 10% of landlords are actively considering selling their properties.

While there was strong demand for properties with viewings up 13.3% and lease signings up 3.5% over the year, overall supply is down 6.9%. If the tax changes have caused you to reconsider your property investments, then here is what you need to be aware of before putting up the ‘For Sale’ sign.


What is landlord mortgage tax relief?

Many landlords opt to apply for a buy-to-let mortgage to fund a property purchase and grow their portfolio. In the past, there has been a tax advantage for those with a buy-to-let mortgage. Landlords were only required to declare rental income after they had paid their mortgage, potentially saving money on their tax liability.

Since April 2017, the way in which landlords have to declare any rental income has changed. Between 2017 and 2020 landlords mortgage tax relief will be phased out. In the 2019-20 tax year, you can claim 25% of your mortgage tax relief, and by the tax year, 2020-21 landlords will no longer be able to deduct their mortgage costs from their rental income.

From April 2020, all of the rental income that landlords earn will be taxable, and instead, they will receive a 20% tax credit for their mortgage interest. While this means a potential reduction on your final tax bill by 20% of your interest, it could also potentially mean you will pay more in tax than before.

Income tax and National Insurance (NI)
Landlords are required to pay income tax on any rental income that is over £1000 a year. You are required to complete a Self Assessment tax return your rental income is:

  • £2,500 to £9,999 after allowable expenses
  • £10,000 or more before allowable expenses

If you do not usually send a tax return, you need to register by 5 October following the tax year you had rental income.

You have to pay Class 2 National Insurance if your profits are over £5,965 a year and what you do counts as running a business, for example, if all the following apply:

  • being a landlord is your primary job
  • you rent out more than one property
  • you’re buying new properties to rent out

If your profits are under £5,965, you can make voluntary Class 2 National Insurance payments, for example, to make sure you get the full State Pension.

You can find out more information about the tax and NI you are required to pay on the website.


Capital Gains Tax

You may have to pay Capital Gains Tax if you make a profit (‘gain’) when you sell (or ‘dispose of’) property that’s not your home, for example:

  • buy-to-let properties
  • business premises
  • land
  • inherited property

However, you may get tax relief if the property is a business asset and if the property was occupied by a dependent relative, you might not have to pay. Find out more about this here.

You also need to be aware that if two people own the property, then you will also have two capital gains allowances. Property gains are usually taxed at either 18% or 28% (normally this is 10% & 20% for investment gains).

If the purpose of your business is to buy and sell property (you’re a property developer, for example) you do not pay Capital Gains Tax when you sell a property. Instead, you pay:

  • Income Tax – if you’re a sole trader or partner
  • Corporation Tax – if you’re a limited company


Inheritance Tax

Before selling your property, it is essential to understand any Inheritance Tax (IHT) implications. If you are not clear on what, if any, the impact would be, then seek professional advice.


Purchasing other properties

If you are planning to buy additional property, then remember you will be liable to pay Stamp Duty Land Tax (SDLT).

In England, the current SDLT threshold is £125,000 for residential properties and £150,000 for non-residential land and properties. You can use this calculator to work how much SDLT you may need to pay on a new property.


Get professional advice

Before selling off any investment, it may be prudent to consult a finance professional to understand all the tax implications. Our Life Centred Planners specialise in tax and investment planning and are passionate about helping you to achieve your financial goals. Contact us today for a free chat to see how we can help you.

Life Centred Planners help individuals, businesses and families achieve the best quality of life they can with the resources they have. MRA specialise in corporate solutions, cash-flow analysis, taxation, debt management, savings and investments, life centred planning and much more. Life Centred Financial Planners are passionate about working with you to help you achieve your life and financial goals, get control of your finances to enjoy a brighter financial future.