If you have extra funds and you are looking for some investment you should definitely consider investing in the buy to let property. Buy to let property is the property which is bought with the intention to rent. Buy to let property can be bought on cash and other buy to let mortgages.
Investing in BTL property would mean that you will get the monthly rent from the tenant and you can also make profit from the sale of the property when the property prices increase.
According to Right move, after the lockdown, the demand in the rental property has increased. The demand is 22 percent more at this time than it was last year.
What would be tax implications in buying the property for buy to let? If you are thinking of investing in BTL properties you will be dealing with the following taxes:
- Inheritance tax: Tax an individual pays when he dies
- Capital gains tax: Tax an individual pays when he sells the property
- Stamp Duty and land tax: Tax that is paid when an individual purchases a property
- Income tax: Tax an individual pays when he is renting the property
If we understand the above taxes we can plan ahead and reduce the risks. We at Taxaccolega have an in house property expert team and we can help you advice on the above taxes so you can make a more informed decision.
Some of the challenges that are faced by the BTL landlords:
Mortgage tax Relief: Previously the interest payment on the mortgage could be deducted as an expense from the rental income thereby reducing the taxable income which in turn reduces the income on the rent. However, from April 2020 the mortgage interest cannot be deducted as an expense which can increase the tax paid on the rental income.
Capital Gains Tax: You will have to pay capital gains tax when you decide to sell your Buy to let property, you should always consider this as a cost which will reduce your profits.
We are advising our clients to purchase a Buy to let property through a limited company. If you are holding a property through a limited company you can reduce the tax bills as the companies can deduct the interest on the mortgage as an expense and therefore reduce the tax bills.
If you renting a property through a limited company you will pay the corporation tax on the rental income which you receive, whereas if you are renting a property you will be paying tax on the income tax which is higher than the corporation tax.
However, every situation is different and buying a property is a long term investment, you should be well aware of all the reliefs and options available to you in order to make maximum gain.
If you need a professional advice, please do not hesitate to contact Taxaccolega at 020 8127 0728 and we can do all the calculations for you and help you make a decision based on real numbers.