Stamp duty:
When you buy a second home or a BTL property, you pay stamp duty at the standard rates plus a 3 per cent surcharge on each band.
Property value | Standard SDLT Rate 23/09/22–31/03/25 | SDLT rate on second homes or BTLs 23/09/22–31/03/25 |
|---|
Up to £250,000 | 0% | 3% |
£250,001 - £925,000 | 5% | 8% |
£925,001 - £1,500,000 | 10% | 13% |
From £1,500,001 | 12% | 15% |
Tax on rental income:
Your income tax band determines the rate at which you will pay on rental income.
Income tax band | Taxable income 2022-23 | Income tax rate 2022-23 | Taxable income 2023-24 | Income tax rate 2023-24 |
|---|
Personal allowance | Up to £12,570 | 0% | Up to £12,570 | 0% |
Basic rate | £12,571 - £50,270 | 20% | £12,571 - £50,270 | 20% |
Higher rate | £50,271 - £150,000 | 40% | £50,271 - £125,139 | 40% |
Additional rate | £150,001 and above | 45% | £125,140 and above | 45% |
Capital gains tax:
CGT is a UK tax you pay on the capital gain you earn from the sale of various chargeable assets, including property or land that is not your main residence.
The CGT allowance on property for 2022-23 is £12,300 and is set to reduce to £6,000 for 2023-24 and then again to £3,000 for 2024-25.
The reduction from 2023-24 in the maximum capital gain before CGT is charged will likely affect some landlords.
Taxable gains on property 2022-23 | CGT rate on property 2022-23 | Taxable gains on property 2023-24 | CGT rate on property 2023-24 |
|---|
Up to £12,300 | 0% | Up to £6,000 | 0% |
£12,301 - £50,270 | 18% | £6,000 - £50,270 | 18% |
£50,271 and above | 28% | £50,271 and above | 28% |
You do not pay CGT on property owned and sold by a limited company; you pay corporation tax, which currently stands at 19 per cent (2022-23) and is due to rise to 25 per cent from April 2023.
Lettings relief:
Lettings relief was introduced to avoid penalising people who moved home and were unable to sell their previous home simultaneously with the new purchase.
When introduced this relief allowed people up to three years to sell their previous home without having to pay any CGT on it, but over the years the maximum period has been reduced and is now only nine months.
As well as providing some benefit to anyone whose sale of their previous home is delayed beyond the purchase of their new home this relief provides some modest help to anyone doing a let to buy.
If a property that was previously a main residence is retained and let out, lettings relief means that it is treated for CGT purposes as a main residence for an extra nine months. If a property was a main residence for part of the period of ownership and let out for part, any CGT is calculated on a time apportionment basis, regardless of when the capital gain occurred.
As an example, CGT for a property that is owned for 15 years and occupied for 10 years and three months as a main residence and then rented out for four years and nine months before being sold would be calculated like this:
- Main residence: 10.25 years.
- Letting relief: 0.75 years.
- Total 11 years.
- CGT would therefore be payable on 4/15 of any capital gain.
Source: John Charcol
