Discover when you'll pay tax on your buy-to-let investment.
This is one of the most common questions we hear about tax – “at what stage do I incur tax on my property investment?”. The short answer, in theory at least, is at three stages:
When you purchase your buy-to-let property, you’ll pay Stamp Duty Land Tax (SDLT).
Now, there’s a common misconception that, should you invest with a limited company, you’ll pay more in SDLT than if you buy in your own name. This is false. In fact, in almost all cases you’ll pay the same regardless of how you purchase your property. As a reminder, here are the SDLT rates for additional residential property purchases in England and Northern Ireland, based on property value (assuming you’re buying an additional property through a limited company):
Property value
SDLT rate for UK resident investors
SDLT rate for Non-UK resident investors
Up to £40,000
0%
£40,000-£250,000
3%
5%
£250,001-£925,000
8%
10%
£925,001-£1.5m
13%
15%
Over £1.5m
17%
Note: Different taxes and rates apply to investment properties in Scotland and Wales.
How you purchase your property will affect the type of tax you pay on your profits them. If you buy-to-let in your own name, your profits will be subject to Income Tax (at 20, 40, or even 45%, depending on your tax band). But, if you invest through a limited company, you’ll pay 19% in Corporation Tax on the first £50,000 in profit.
If you sell a buy-to-let property for more than you bought it, you'll pay Capital Gains Tax (CGT). Depending on your income bracket, that’ll either be 18% or 28%.
When you buy through a limited company, though, you can sell the shares in that company. You’ll still need to pay CGT, but it’s either 10-20% for share sales. That means, no matter your income bracket, you’ll pay 8% less tax on your capital gain when you sell, if you invest through a company.