An Overview of UK Property Taxes - Assets For Life (2024)

Being a successful property owner also means being a responsible one.

While UK property taxes can be dauntingly tricky and complex, it is important to at least have a basic understanding of the subject. In today’s blog, we will learn some of the common taxes that you will need to know if you are to enter into property investment.

Stamp Duty Property Tax

The first tax type that any property investor should know is Stamp Duty Land Tax or SDLT. This applies to most sales and transfers of property assets. If you will be building on the property, the tax will only be based on the land value and not on the construction costs.

(Take note that SDLT is applicable in England and Northern Ireland. A different tax applies to properties in Scotland or Wales.)

How is SDLT computed?

This tax is computed following a tiered system wherein the applicable tax increases as the price of the property increases. The tax charge ranges from 2% to 12% and applies to all properties valued above £125,000.

Therefore, if you buy a property worth £225,000, then you have to pay 2% of the 100,000 difference.

Can I be exempted from paying SDLT?

Exemption from paying SDLT is granted in some specific conditions such as if the property is being transferred under a will. There is also the possibility of reducing your payable stamped duty land tax through what is called a Relief Claim especially if you are a first-time buyer.

Will the SDLT change if I purchase a second property?

If you already have a property and decide to invest in another one for the purpose of leasing it, then the Stamp Duty Land Tax for that property is subject to an increased rate.

The additional charge ranges from 3 to 15% and applies to all properties worth above 40,000.

Who shoulders the SDLT in a property sale?

The Stamp Duty Land Tax is paid by the property buyer. It has to be settled no later than 30 days after the transaction. Late payment will be subject to penalties.

Income Tax

If you are making use of your property as a business, then it generates income for you – and any income, of course, is subject to taxes too.

How is Income Tax computed?

Under British law, all income above £12,570 is taxable. Just like Stamp Duty Land Tax, Income Taxes also follow a tiered system with each tier having a tax charge of either 20, 40%, or 45% depending on how big your income is.

If, for example, your property business earns a total of £22,570, then you have to pay 20% of £10,000 which is the taxable amount.

Can property Income Tax be reduced?

One benefit of being a property business owner is that you are entitled to Tax Deductions. Expenses used for certain operational costs are deducted from your total taxable income. This, in turn, lessens your due tax.

Deductions may include maintenance and utilities, insurance premiums, leasing agency fees, mortgage interest, and local taxes.

Capital Gains Tax

Properties tend to appreciate in value over time. If you purchase a property and resell it later at a higher price, then your profit will be subject to Capital Gains Tax or CGT. This tax also applies if you transfer the ownership of your property to someone else (whether as a gift or as an inheritance.)

How is Capital Gains Tax computed?

Take note that Capital Gains Tax is not based on the total value of the property. To be specific, it applies to the difference between the original purchase value and the resell value. The CGT rate in the UK for residential properties is set at 28%.

Therefore, if you buy a property for £125,000 and you decide to resell it later on at an increased price of £225,000, then you will have to pay a 28% of the £100,000 difference as CGT.

Can I be exempted from paying CGT?

First of all, you will only need to pay for CGT if your annual gains go above the tax-free allowance. Currently, the allowance cap is set at £12,300.

Moreover, Capital Gains Tax normally does not apply to properties that have been exclusively used as a residence. If the property you are selling is the place where you live and given that you did not make use of it (or any part of it) for business purposes, then you can be exempted from CGT.

It is also waived if you transfer the property as a gift to a husband, wife, civil partner, or charity.

Can property Capital Gains Tax be reduced?

If the total profit from the sale is below the minimum Income Tax tier, then the CGT will be reduced to 18%.

You may also be eligible for Tax Relief if you sell the property as a business asset. If you practice buy-and-sell or if you are a property developer, then you may not need to pay CGT and instead pay income tax or corporate tax.

Expenses spent on upgrading the property can also be deducted from your due Capital Gains Tax. This can include constructing additional facilities or extending the existing building.

Was this blog helpful?

Taxation is never a simple matter, but it is certainly something that cannot be disregarded and an essential aspect of any property business. The pointers provided in this blog serves only as a basic guide but we encourage you to continue and self-learn

As a bonus, clickHEREto get a free guide from AFL founder, Liam Ryan.