Property investment can be viewed by individuals as the best way to secure their money as part of a long-term strategy. In the same light way HMRC sees this an opportunity to obtain revenue from property investment. There are various taxes which exists such as income tax, capital gains tax, inheritance tax, stamp duty land tax and some of these taxes evolve to generate further revenues for inland revenue for example additional stamp duty land tax surcharge.
Stamp Duty Land Tax (SDLT) must be paid by the buyer within 14 days of the effective date of purchase. This would be the earlier of when you take possession of the property and when the funds are handed over (on completion). If you are purchasing 6 or more properties, you can elect to use commercial property SDLT rates which could work out to be lower.
Currently there is a stamp duty holiday until 30th September and provided there is no extension to the following starting thresholds apply.
£500,000 for purchases from 8 July 2020 to 30 June 2021
£250,000 for purchases from 1 July 2021 to 30 September 2021
£125,000 for purchases from 1 October 2021
There is an additional 3% surcharge to pay on buy to let and additional properties.
Purchases from 8 July 2020 to 30 June 2021
| Property or lease premium or transfer value | SDLT | Surcharge | Effective SDLT |
| Up to £500k | 0% | 3% | 3% |
| Portion from £500,001 to £925,000 | 5% | 3% | 8% |
| Portion from £925,000 to £1.5m | 10% | 3% | 13% |
| Portion above £1.5m | 12% | 3% | 15% |
Purchases from 1 July 2021 to 30 September 2021
| Property or lease premium or transfer value | SDLT | Surcharge | Effective SDLT |
| Up to £250,000 | 0% | 3% | 3% |
| Portion from £250,001 to £925,000 | 5% | 3% | 8% |
| Portion from £925,000 to £1.5m | 10% | 3% | 13% |
| Portion above £1.5m | 12% | 3% | 15% |
Purchases from 1 October 2021
| Property or lease premium or transfer value | SDLT | Surcharge | Effective SDLT |
| Up to £125,000 | 0% | 3% | 3% |
| Portion from £125,001 to £250,000 | 2% | 3% | 5% |
| Portion between £250,001 to £925,000 | 5% | 3% | 8% |
| Portion between £925,001 to £1.5m | 10% | 3% | 13% |
| Above £1.5m | 12% | 3% | 15% |
Other tax considerations
Income Tax – from 6th April 2020, tax relief on mortgage interest deduction will only be given at the basic rate (20%) which applies to individuals with rental properties. If you are using a limited company structure (or something similar) there is no change to the way you receive tax relief.
Value Added Tax (VAT) – letting of residential property is exempt of VAT. However, letting of holiday accommodation is NOT exempt so if your turnover is more £85,000 you should be VAT registered and charge VAT.
Capital Gains Tax (CGT) – If you sell a property or transfer the property from individual ownership into a limited company structure (a limited company is treated separate legal person/entity for the purposes of tax) you may have to pay Capital Gains tax on any capital gains that arises. Current rates for residential property are 18% for basic taxpayer and 28% for higher rate taxpayers. One point to note is profit on the sale of your main residence is covered by principle private residence relief meaning no CGT is payable.
Inheritance Tax (IHT) – if your Nil rate band (currently £325,000) is up used then any value of your buy to let properties will be subject to IHT at 40%
Effective planning is crucial including having an exit strategy. For example, selling or transferring your assets in phases over many years is likely to be significantly more tax efficient than doing it within one year especially for CGT and IHT consideration.
Property investment is always evolving due to legislation being designed to either create more revenue for HMRC or an attempt to balance the supply and demand. To be successful in property will become harder for anyone who is not willing to be professional about their approach to investing. This includes investing in the right team who are specialist in what they do in relation to the property industry so you can leverage off their skills, experience, and knowledge.
Disclaimer: Please note this content is for information purposes only and does not represent professional advice. Tax legislation, the law and practices by the UK government are constantly changing and the information in only correct as at the date of publication May 2021. Taxes and rates may differ in Scotland and Wales.