Tax facts
Landlords…are you paying the wrong amount of tax?

The buy-to-let market remains very much in vogue for investors, with 350,000 people taking out mortgages worth a total of £38bn last year. However, it is estimated that over 700,000 amateur landlords could be paying the wrong amount of tax.

With the Government under pressure to pull in as much tax as possible and property investors a potentially lucrative source of income, HM Revenue and Customs are determined to get their slice of the profits from rising property prices and rents.

Tax facts
Rent is subject to income tax, but expenses can be deducted. Interest that you pay on your mortgage can also be set off against your tax bill.

If you rent out a room in your home, the taxman will allow you to earn up to £4,250 (2007/08) of rental income a year tax-free, but you must still declare it.
On the sale of your property, the first £9,200 (2007/08) of profit per person is free of capital gains tax (CGT).

Buy-to-lets benefit from non-business assets taper relief, which could reduce your bill above a £9,200 threshold.

If your property is classed as a furnished holiday let, you can qualify for the more generous business-asset taper relief.

If you live in the property prior to selling, you could claim it as your principal private residence (PPR) and benefit from three years of growth free from CGT. HM Revenue & Customs does not specify how long you need to have lived there, but they might ask for proof.

You may also qualify for lettings relief of up to £40,000.

This article is for your general information and use only and is not intended to address your particular requirements. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without appropriate professional advice after a thorough examination of their particular situation. Your home may be repossessed if you do not keep up repayments on your mortgage.

Article date: 03.07