income taxes on buying a property

When buying a property for rent in the UK, is very important that we make a thorough financial analysis to establish different scenarios in order to make sure that our investment is optimal when it comes to paying taxes for income-called “Income Tax”.

The British government established an “Income Tax” of 20% on rental income to approximately £ 40,000 annual income. We should note that on the first £ 7,475 of net income is not taxed. The following £ 2,560 taxed at 10% and from there to about £ 40,000 net annual income will pay 20% of “Income Tax”.

Gross income can deduct all expenses related to property. Some of the expenses that are deductible interest payments on the mortgage, property repairs, management fees and so on.

For example:

Net rental Tax rate
Which taxed:
£7,475 0%
£1,825 10%
0 20%

In this case the “Income Tax” will be calculated as follows:

Property Price £400,000
Mortgage 50% (25 years)  £200,000
Period          2012
Annual rent £20,000
Mortgage annual fee -£7,500
Mortgage interest rate 4.00%
Service charge -£2,000
Comission rental management -£1,200
Net annual rent £9,300

When buying a property in the UK in addition to the purchase price is has to be paid the Stamp Duty Land Tax (SDLT) This tax is payable on all purchases of apartments, land and buildings.To achieve full efficiency, we must consider each case individually thus establishing the optimal level of leverage for each buyer.

Purchase property price Percentaje of SDLT (percentage over the total Price)
£0 – £125,000 0%
£125,001 – £250,000 1%
£250,001 – £500,000 3%
£500,001 – £1 million 4%
£1 million – £2 million£2 million or more 5%7%

Disclaimer:  Please note this content is purely for informative purposes taken from HMRC Website. We are not tax advisers. You should seek your own tax advice from a qualified professional. Please contact us if you want us to refer you to a qualified tax adviser.