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There have been so many recent shake-ups on property taxes, we’ve produced an up-to-date guide on what you’ll have to pay next time you pack. Don’t move home without it!

If you’re thinking of buying your first home, or upsizing or downsizing into somewhere new, you need to know your property tax. Recent changes to the residential tax system — and the effects of devolution across the UK — will be good news for some aspiring property magnates, but more sobering news for others. Here’s our simple guide to understanding your obligations, before you begin falling in love with properties on RightMove…

Figures are correct at the time of publication (Sept 2018)

England & Northern Ireland – Stamp Duty Land Tax (SDLT)

First-Time Buyers

First-time buyers do not have to pay any stamp duty when they buy a home for up to £300,000.

As if getting your first set of keys wasn’t exciting enough, this big change could save new homebuyers thousands.

You’ll also save money if you’re buying a first house worth between £300,001 and £500,000. You’ll pay £0 up to £300,000 (as before), and then just 5% on the portion of the property between £300,001 and £500,000. This is especially good news if you’re a first-time buyer in London or the South East of England, where properties under £300,000 are, most likely, a smallish kennel.

Existing home-owners

If you already own a home and you’re looking to move, you’ll be liable for Stamp Duty. You’ll still have to pay £0 SDLT on properties up to the value of £125,000. But SDLT becomes payable after that, at the rates given in our table below.

 

Residential Property Price

SDLT Rate

Up to £125,000

Nil

£125,001 to £250,000

2%

£250,001 to £925,000

5%

£925,001 to £1.5 million

10%

Over £1.5 million

12%

Second-home buyers

If you already own a property and want to buy a second home — or you have a portfolio of properties that you wish to add to — you’ll have to pay an additional 3% of SDLT on the new property, on top of the standard rates for existing home-owners. This higher-rate stamp duty applies if you, or anyone else with whom you are buying the property will own more than one residential property, anywhere in the world, worth over £40,000, at the time you complete the sale. The higher rates apply even if your new home will be your main residence, if, on the day of the new purchase, you or your partner end up owning more than one property. The higher rates: 

Residential Property PriceHigher SDLT Rate
Up to £125,0003%
£125,001 to £250,0005%
£250,001 to £925,0008%
£925,001 to £1.5 million13%
Over £1.5 million15%

If there is a simple delay in your moving process – for example, you buy your new home before you manage to complete the sale on your existing home, you will still have to pay the higher rate of stamp duty, but you can apply for a refund if you sell your existing home within 36 months.

There are certain exemptions – for example, if you’re buying a property that is a mixture of residential and non-residential (for example, a flat above a shop). We recommend you talk to us, or read HMRC’s full guide.

If you do own more than one property, you might also be liable to pay Capital Gains Tax. See below.

Capital Gains Tax

Selling any property you own, aside from your main residence, makes you liable for Capital Gains Tax on any profit you make above the current annual exemption. In 2018/19, that exemption is £11,700.

If you sell a second home and make a gain of more than £11,700, you’ll have to pay Capital Gains Tax. The amount you pay depends on how much you’ve earned in that tax year, and what tax band you’re in.

For instance, basic-rate taxpayers earning up to £46,350 pay 18%. This rate rises to 28% for taxpayers above this level of earnings or gains.

If you’d like us to calculate what Capital Gains Tax you might be due to pay if you sell off your charming French villa or Bognor beach-hut, just get in touch.

Income Tax

If the thought of Capital Gains Tax annoys you so much you decide to simply keep your second property and rent it out, you won’t escape the tax man.

Recent changes to mortgage-interest relief mean that it’s now easier than ever to owe tax on rental income.

Landlords used to be able to offset their entire mortgage interest against rental profits before April 2017, at which point the government began phasing this out.

In 2017/18, it was possible to deduct 75% of your mortgage interest. This went down to 50% in 2018/19. It will hit 25% in 2019/20, before being eliminated altogether by 2020/21.  The remainder will continue to attract 20% basic rate tax relief.

Huh?

OK, let’s say you earn £38,000 a year as an employee and are a basic-rate taxpayer. You have a buy-to-let property, which you rent out for £11,400 in 2017/18.

You paid £3,240 in mortgage interest last year, but can only deduct 75% (£2,430) of this from your profits.

The revised £8,970 of your buy-to-let profits will push you into the higher rate band, so you will be liable for 40% tax on some of the profit.  You will however, still get a basic rate tax deduction on the balance of mortgage interest which wasn’t deductible from your profits.

There are ways you could mitigate your position, such renting a property through a limited company where loan interest remains a deductible expense against rental income. Just talk to us about your options.

Scotland & Wales

As an accountancy firm based in Berkshire, we are primarily concerned with the changes facing our clients in England. Residential property tax has changed in Scotland and Wales, since devolution. If you’d like to know more, check out these useful guides:

Scotland’s Land And Building Transaction Tax Guide

Wales’ Land Transaction Tax Guide

Talk to us

It’s difficult for everyone to keep track of the ever-changing landscape of money! At PKB, we believe that knowledge gives our clients the power to make informed, beneficial decisions. If you’d like to be kept up to date with the latest changes and shake-ups, sign up to our newsletter. We’ll give you only the most helpful information, in easy to read formats. And remember, we love to help you with any of your financial concerns. We’d love you to talk to us.

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