If you purchase a residential property, then you have to pay Stamp Duty Land Tax (SDLT) above £125,000
Present rates of SDLT on individual and additional properties are as follows:
- Purchase price up to £125,000 – SDLT rate Zero; auxiliary property rate 3%
- Thereupon, £125,000 (portion from £125,001 to £250,000) – SDLT rate 2%; additional property rate 5%
- Thereupon £675,000 (portion from £250,000 to £925,000) – SDLT rate 5%; additional property rate 8%
- Thereupon £575,000 (portion from £925,000 to £1.5m) – SDLT rate 10%; additional property rate 13%
- The rest of the amount (portion above £1.5m) – SDLT rate 12%; additional property rate 15%
Please note this on strict basis: SDLT no longer appertains in Scotland, where a Land and Buildings Transaction Tax (LBTT) are charged instead.
First of all rent, a room scheme is an optional scheme to owners, occupiers or tenants. They basically release furnished accommodation to a lodger in their main home.
This scheme is one of the best ways to improve bank balance and it is not only you enjoy the extra income from the rent, but also up to £7,500 a year is free from tax. In other words, the Rent a Room scheme is a tax relief and allows individuals to earn a set amount each year free of tax from renting out a room.
Please note that you can’t claim the Rent a Room relief if the accommodation is not in your main home, unfurnished, or is used for any business purposes. You also can’t claim the relief if the accommodation is in your UK home and it is let while you live overseas.
If you wish to charge additional services as a lodger, you have the full authority to do that such as providing meals or laundry services. If your overall income is more than £7,500 and your overall income is greater than the individual Personal Allowance, you are ought to pay some tax.
We can call it as a Yes. But there are some exceptions you need to know:
If gross rental income is less than £10K a year, with net profits of £2500 or less a year and you are a PAYE, then you can opt for where you don’t have to register for self-assessment tax return with HM Revenue & Customs. But, if you want to do this, then display your identification through a declaration in writing to HM Revenue & Customs and request them to collect taxes through PAYE or Tax Code.
WHAT IF THE PROPERTY IS JOINTLY OWNED (SAY – 50/50)?
The above entry is for each individual, if you have a combined rental income of £19500 and net profits of £4,950 a year, it means each of you will have a gross income £9750 and net profits of £2,475 which means you will qualify to declare rental income through a declaration and without registering for self-assessment tax return.
You must report it on a Self-Assessment tax return if it’s £2,500 to £9,999 after allowable expenses, £10,000 or more before allowable expenses, or if you are as a professional accountant, we do advise to register and declare income through personal tax return and also contact HMRC if your income from property rental is less than £2,500 a year.
- letting agents’ fees
- legal fees for lets of a year or less, or for restoring a lease for less than 50 years
- accountants’ fees
- buildings and contents insurance
- interest on property loans
- maintenance and reconstructions to the property (but not improvements)
- utility bills, like gas, water and electricity
- rent, ground rent, service charges
- Council Tax
- services you remunerate for, like cleaning or gardening
- other direct values of letting the property, like phone calls, stationery and advertising
Allowable expenses don’t include ‘capital expenditure’ – like buying a property or restoring it beyond repairs for wear and tear.
You may be able to declare tax relief on money spent on replacing a ‘domestic item’. This is called ‘replacement of domestic items relief’.
Domestic items include:
- beds
- sofas
- curtains
- carpets
- fridges
- crockery and cutlery
You must have only bought the domestic item for use by occupants in a residential property and the item you replaced must no longer be used in that property.
Stamp Duty Land Tax (SDLT) will not be eligible for first time buyers paying £300,000 or less for a residential property from 22 November 2017. But if they are paying between £300,000 and £500,000, then they need to pay SDLT at 5% on the amount of the purchase price in excess of £300,000, a depletion of £5,000 compared to the amount of SDLT they would have previously paid.
Who is classed as a first time buyer?
A first time buyer is basically an individual or individuals who have never possessed an interest in a suburban property in the United Kingdom or anywhere else in the world and who plan to inhabit the property as their main residence.
If the purchasing property is more than £500,000 then first time buyers will not be authorized to any relief and will pay SDLT at the normal rates and must be claimed in an SDLT return.
CAPITAL GAINS TAX (CGT)
It is a tax on gains made on disposing of capital assets, such as shares, selling your business and property, whilst your main home is not normally subject to CGT. An annual exemption is basically the first £11,100 of gains you make in a year are exempt from tax.
Capital gains are taxed at an elevated rate of 20% (28% for residential property and carried interest) for gains where total taxable gains and income are atop the income tax basic rate band of£33,500. Under that, a 10% (18% for residential property and carried interest) rate is appertained.
But there are various reliefs that can lessen this. Most of the codification regarding capital gains tax is all about the exclusion and how to avoid it, so you often find there are ways around it or ways to lessen its footprint.
Q: WHAT IS THE STAMP DUTY LAND TAX IMPLICATION, WHEN TRANSFERRING PROPERTY TO THE LIMITED COMPANY?
Holding a buy to let property via a limited company can be a winning way of holding property. Lower rates of corporation tax and full mortgage interest withdrawal apply following the changes to interest relief for individual landlords.
There have been alterations to stamp duty land tax and as such it has become an area that should be given more than a mere thought. Here we are gazing at the SDLT implications of property transfers in England, Northern Ireland, and Wales. Transmit of property in Scotland will be subject to land and buildings transaction tax, and from 1 April 2018, property transfers in Wales will be subject to the land transaction tax.
Where an individual is transmitting a property to a connected limited company the following should be considered:
The consideration is judged to have been payable at no less than the market value of the property. The SDLT cannot be less if the transfer is for nil consideration or at less than market value. There are no rules or regulations relating to gifts etc.
Q: Can I allocate the income from my investment property to my spouse so it is taxed at a lower rate?
A. Due to the infinity of legislation that applies to land transactions and gifts, various tax implications are of concern.
Where only an income stream is transmitted and the transferor keep an interest in the capital value of the property generating the income, the income is treated for income tax purposes of the income of the transferor under the settlement legislation at ITTOIA 2005 s.624.
To impact a transfer of the income stream and accomplish the client’s objective, the transferor must also transfer a proportionate capital interest. To transfer 50% of the income stream effectively, a 50% interest in the capital value of the property also must be transmitted.
For capital gains tax purposes, capital assets are transferred between spouses at nil gain or loss. The deemed consideration would secure a net gain of £0 after accounting for enhancement expenditure, costs to transfer, etc. There are exclusions to this rule where the spouses are not living together, so do not assume tax neutrality will apply.
The stamp duty regime has also seen a number of important alterations in recent times, and further measures take effect for the 2018/19 tax year. First-time buyers living in England, Wales and Northern Ireland paying £300,000 or less for a residential property, no longer need to pay Stamp Duty Land Tax (SDLT) from 22 November 2017, whilst those paying between £300,000 and £500,000 pay SDLT at 5% on any purchase amount in excess of £300,000.
From 1 April 2018, Wales rolls out its own stamp duty equivalent, the Land Transaction Tax (LTT), which protects the important structure of SDLT but with some key differences, including a higher starting threshold for residential properties. Wales has no plans to launch a relief for first-time buyers.
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