Tax FAQs
Making Tax Digital
What is “Making Tax Digital”?
Answer provided by Tax Scouts Jan 2023
Making Tax Digital (MTD) is the process in which the UK government and HMRC are switching the UK tax service over to a fully digital one. VAT-registered businesses, landlords, and the self-employed will soon have to complete their tax records entirely online using a special type of MTD-compliant software.
Making Tax Digital has already come into effect for VAT registered businesses (April 2022), but it’s yet to do so for Income Tax, i.e. those who file for Self Assessment. The current deadline for MTD Self Assessment is 6th April 2026. Further detail can be found in our guide: How to Make Tax Digital (MTD): Self Assessment
Expenses and tax allowances
What expenses can be claimed as a landlord?
Answer provided by Tax Scouts Jan 2023
Anything can be claimed on expenses, as long as it related directly to renting or maintaining your property. This could include:
Letting agents’ fees, accountants’ fees (including TaxScouts), and legal fees
Rent and ground rent
Gas, electricity, water, and other utilities
Costs for repairs can be claimed (e.g. replacing doors, windows etc.)
Home improvements cannot (e.g. adding an extension)
Tax credit equivalent to 20% of the mortgage interest
Can I claim expenses for costs that I have paid in cash? (e.g. paying cleaners)
Answer provided by Tax Scouts Jan 2023
Yes you can. You are, however, responsible for maintaining thorough and robust records for your business and so if you do not get an invoice for such services, it may be worthwhile implementing receipts
Are there any allowances that can be used when paying tax?
Answer provided by Tax Scouts Jan 2023
The Personal Allowance: if your total income (rent + other sources) is under £12,570, then you don’t need to do anything – it’s tax-free.
The Marriage Allowance: can be worth another £250
The Rent-A-Room Scheme: if you also live in the property you’re renting, then you can claim a flat £7,500 tax-free allowance
The Property Income Allowance: you should use this if you don’t live on the property, or you didn’t have big expenses. It’s a flat £1,000
How do I calculate my capital allowances on a furnished holiday let?
Answer provided by LessTax4Landlords Nov 2022
You should speak with your accountant as to what expenditure should be treated as an expense to income, and what should be treated as capital expenditure. There can be tax advantages to either. Capital Allowances are one of the most complicated aspects of property tax accounting, particularly if you are making a claim for previously unclaimed capital allowances. Such allowances now have to be agreed at the point of purchase/sale, and it is well worth employing a specialist to help ensure you get maximum value from any unused capital allowances. It is not unusual to see high 6-figure savings available on commercial property.
Business Rates and when they are applicable rather than Council Tax
Answer provided by LessTax4Landlords Nov 2022
Business rates are local taxes paid by the occupiers of all non-domestic/business property, in the same way that council tax is a tax on domestic property. Where the property is primarily to be used for business purposes, then the property will normally be subject to business rates (and not council tax). For landlords running holiday lets and serviced accommodation, the rules change from April 1st 2023. If your property is in England, it will be rated as a self-catering property and valued for business rates if it’s both:
- available to let for short periods for at least 140 days in total over the current and previous tax years
- actually let for at least 70 days in the last 12 months
If your property is in Wales, it will be rated as a self-catering property and valued for business rates if it’s both:
- available to let for short periods for at least 252 days in total over the current and previous tax years
- actually let for at least 182 days in the last 12 months
There are different rules for Scotland.
Relief is also available for a small business's first property, which you should confirm with your local council (https://www.gov.uk/apply-for-business-rate-relief) The landlord should also check that they meet all the local authority (and lenders) criteria for business use of the property.
Capital Gains Tax
I would like to know the regs for CGT, do I pay it if I sell a buy to let to purchase another buy to let?
Answer provided by LessTax4Landlords Nov 2022
Yes, you are only entitled to CGT relief if you are disposing of your main home. However, if the property has been your own home in the past, then you would be entitled to a partial relief proportionate to the time you were actually living in the property. https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2020
Can you advise me on Capital Gains Tax?
Answer provided by LessTax4Landlords Nov 2022
You need to speak with an accountant or property tax advisor. LessTax4Landlords will provide advice on specific Capital Gains Tax situations for clients of their accountancy services.
What do I need to do with Capital Gains Tax when I sell?
Answer provided by LessTax4Landlords Nov 2022
You must report and Pay CGT due on UK Residential Property within:
- 60 days of selling the property if the completion date was on or after 27 October 2021
- 30 days of selling the property if the completion date was between 6 April 2020 and 26 October 2021
For UK Residents, you need only report where there is a taxable gain to be paid
For Non Residents, all sales must be reported regardless
I have owned my leasehold property for 31 years and it has 68 years left on the lease. I am looking to sell the lease in the next 5 years. What is the formula to work out the level of reduction in value of the lease as it moves from 68 to 63 years left to run with a BTL mortgage that is due to renew?
Answer provided by LessTax4Landlords Nov 2022
There are obviously several variables that would impact the value of a lease. For leases with 30-80 years left to run, the Graphs of Relativity is a reasonably accepted formula. You will need a chartered surveyor or visit https://www.graphsofrelativity.co.uk/ For less than 30 years, use of an investment calculation is more likely (i.e. what would the lease be worth to an investor seeking a return at x%?).
The Capital Gains Tax (CGT) is worked out by deducting sales proceeds less capital costs. How do I calculate this if I have bought a co-owner out of the property before the sale?
Example:
Property was £90k when bought by landlord and friend. 18 months ago the property was worth £110,000.
£50k owed on the mortgage at the time. £110k - £50k = £60k / 2 = £30k
The landlord paid the friend £30,000.
The property has since gone up in value to £140k.
What would I need to pay CGT on?
Answer provided by GetGround Sept 2022
As I understand it, you paid £90,000 jointly initially, so your 50% share would be £45,000.
You then bought your friend out by paying £30,000 and assuming his share of the debt on the mortgage of £25,000 the friend’s debt should be added to the cost.
The base cost is therefore £45,000+£30,000+£25,000=£100,000.
You can then deduct any other deductible capital costs from this.
General FAQS
What's the best way for me to set up a limited company for my investment/s?
Answer provided by GetGround Sept 2022
Most people will tell you that setting up a limited company for your property investments is pretty simple. You can do this at Companies House in about 10 minutes, for roughly £12.
But this doesn’t tell the whole story. When you go DIY with your limited company, you run three key risks:
SIC codes. To create your company, you’ll need the right SIC code. This tells Companies House the type of business it is. But this can get tricky: there are over 600 SIC codes, and choosing the wrong one can hurt your chances of getting a mortgage (your lender will need to confirm that your company exists only to hold investment property, before approving any application).
Share structures. These range from the simple to the downright baffling, and, when setting up, you’ll need to choose the right structure for you. Picking an unnecessarily complex share structure could, again, slow down any mortgage application, as the lender’s due diligence will take longer.
Legal documents. When you create your company yourself, it’s tempting to use free, cookie-cutter legal documents (like Shareholders’ Agreements) from the internet. But these are often generic, low-quality, and afford you little protection in the event of a legal dispute. You could get these drafted by a solicitor, of course – but this takes time, and hits you in your pocket.
All these factors make DIY company creation a less attractive prospect than it might first appear. The easy alternative? A buy-to-let company creation platform like GetGround. We serve property investors, and only property investors – meaning the SIC codes are always correct, the share structures are always suitable, and you’re always protected by high-quality documents that are built for buy-to-let.
We’ll design your perfect limited company in just half an hour. And, once it’s incorporated, we’ll manage the filing and tax returns for under £1 per day. To learn more about creating your company with GetGround, visit us here.
Should the property purchase price have been included on the self-assessment if the property was bought in cash with no mortgage?
Answer provided by LessTax4Landlords Nov 2022
No this would not need to be included.
How do I obtain a refund of the 3% SDLT second home surcharge?
Answer provided by LessTax4Landlords Nov 2022
If you have purchased a new home and subsequently disposed of your previous main residence within 3 years, you can claim the relief online via your government gateway account, or by post. (https://www.gov.uk/government/publications/stamp-duty-land-tax-apply-for-a-repayment-of-the-higher-rates-for-additional-properties)
What are the rules if a UK citizen is living abroad and wants to purchase a property with a family member is based in the UK? Will the full transaction value would be subject to the overseas stamp duty surcharge of 2%? If so would it be an option to structure a company so the charges can be avoided?
Answer provided by Rita4Rent Nov 22
If you are a non-resident under the stamp duty land tax rules (not the same as the test that is used for income tax and capital gains tax) you would be subject to the 2% surcharge. To be considered as a resident, and not be subject to the 2% charge, you would need to spend 183 days in any 1 year period starting a year before the transaction, and ending a year afterwards. Where you meet these conditions subsequent to the date of the transaction it means you would need to apply for a refund.
Just to confirm, assuming the family member is not a spouse, the transaction is subject to the 2% charge if only one person, i.e. you, is a non-resident under the above tests.
The test for a company is slightly different in that a company would need to be controlled by a non-resident (or multiple non-residents.) So, a simple answer is to make sure the company isn’t controlled by a non-resident. If the shares are held 50:50 (assuming the shares give full rights such as voting rights etc.) the company is not non-UK controlled and the surcharge wouldn’t apply.
What are the tax implications of transferring my rental property to my relative and what is the best way forward financially?
Answer provided by LessTax4Landlords Nov 2022
This will depend on whether the transfer is a gift or in return for consideration. It will also depend on whether the 'relative' is a connected person or not (for who counts as a connected relative for Capital Gains Tax see https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14580).
Assuming we are talking about a gift of the property, then where the relative is not a spouse, Capital Gains Tax (CGT) will be due on the market value. Even if the property is sold in return for consideration, if that sale is to a connected relative, then the CGT will be based on the market value of the property if the property was transferred for less than market value.
In addition, if there is a transfer of consideration (payment, or mortgage debt), then SDLT will be due on the value of the consideration.
If the relative does not own any other property they will only pay SDLT if the consideration paid (including mortgage debt transferred) is above the threshold (currently £250,000 as of 2/11/2022). If however the relative already owns a residential property, then they will have to pay additional stamp duty of 3% on the entire consideration. The only exception is where the consideration is less than £40,000, in which case an SDLT return is not required and there is no SDLT.
It is possible to mitigate the SDLT by transferring only the beneficial interest in the property. This means the current owner retains full legal responsibility for the debt on the property, although the beneficial owner may pay the mortgage payments. These type of transfers are reasonably common and in the case of spousal transfers, you can instruct a firm like Less Tax for Landlords and their solicitors to carry out this work for as a little as £300 per property.
For transfers to another relative, further advice should be sought before making an instruction. The type of advice required will depend on your specific circumstances, goals and aims. For example you may require estate planning advice as well as tax and mortgage advice.
