Buy to Let Tax Changes [Updated 2023]
Will buy to let tax changes be reversed?
Reduced rates of Stamp Duty Land Tax (SDLT) appliedfor residential properties purchased from 8 July 2020 until 30 September 2021, as part of government policies to boost the economy during the Covid-19 pandemic.
These changes are no longer in place, so property investors who buy properties in 2023 will be required to pay standard stamp duty rates, in addition to the 3% surcharge for second homes or buy-to-let properties.
However the Truss/Kwarteng Stamp Duty cut in September 2022, which raised the nil-rate band from £125,000 to £250,000, remains in place. There was also an increase in the First Time Buyer discount, increasing that exemption from £300,000 to £425,000, with a discounted payment on properties up to the value of £625,000.
Mortgage interest relief 2023: buy to let tax changes explained
Buy to let mortgage tax relief changes were first implemented in 2017. Prior to then, it was possible to deduct costs (such as mortgage interest) from your rental income. Over a four-year period, this has been phased out, with a new “tax credit” system in place which means landlords cannot deduct mortgage interest from rental income.
It's important to understand that tax laws change regularly, and as a buy-to-let investor, you need to be aware of any upcoming changes which could affect your income.
What is tax on a buy-to-let property in UK?
Property landlords must pay standard income tax on their rental income. This means landlords must pay 20% tax on income between a threshold of £12,571 and £50,270. An additional higher threshold applies to landlords earning between £50,271 and £149,999. Landlords earning in this bracket will pay 40% tax. Landlords who earn £150,000 or greater from rental income will be obliged to pay 45% tax.
How many years can you rent your house out to avoid capital gains UK?
When you sell your main home (where you live), you are entitled to Private Residence Relief (PRR). PRR means you won’t pay Capital Gains Tax. However, as a landlord, you can also claim PRR for a rental property you decide to sell if it was ever used as your main residence.
This means you can claim PRR for the length of time you lived there, in addition to the final 9 months of property ownership, regardless of whether it was rented out during this time. As an example, if you owned a property for 10 years and lived in it for 3 years, you could claim PRR for 45 months (the 36 months you lived there and the final 9 months of ownership).
How much rental income is tax-free?
The government stipulates that the first £1,000 of income from a rental property is tax-free. If your income from rent is less than or equal to £1,000 (before expenses), you will not be required to declare this to HMRC. If your sole source of income is from renting out a property, you will not be expected to pay any tax on your earnings below the personal allowance of £12,570.
