Detangling buy to let taxation

A Buy-to-Let property is where an investor purchases the property to benefit from an income from the rent, but also generally for the appreciation in the property’s capital value, which we have historically seen. However, given the previous profitability and popularity of Buy-to-Let properties coupled with other factors, the government has introduced several taxation increases over the last decade.

Landlords are likely to see an impact upon the sale of their investment properties with the reduced capital gains exemption, given they will pay a higher rate of capital gains tax compared to gains on other assets. However, landlords have been penalised numerous times in recent years, which has generally reduced the attractiveness and profitability of Buy to Let as an investment.

In 2016 an additional stamp duty was introduced for second properties, meaning that second properties purchased for over £40,000 would incur an additional 3% stamp duty on the total value. Based on the average UK house price of £286,000 in April 2023 this is an additional cost of £8,580.

Further to this, in 2017 changes were introduced over several years meaning landlords were restricted to only being able to offset the interest on their borrowing against the basic rate of income tax.

These changes have increased the initial taxes due when purchasing an investment property, increased the taxation on rental income for landlords paying higher or additional rates of income tax, thus reducing their profits, and increased the taxation upon selling investment properties.