Here we are going to discuss about the types of London property tax that you are liable to pay. We also want to show you what are the items which you can claim to reduce the amount of tax payable. Below is the general explanation about London property tax when you purchase London residential property. We advise you to engage professional tax expert if you have personal circumstances and would like to discuss about more specific case.
5 Types of London property tax
Stamp Duty Land Tax (SDLT)
The first London property tax you have to include into your cost when you decide to purchase property in London is stamp duty land tax.
Stamp duty land tax is payable upon your completion of your property. Below are the stamp duty land tax rate effective from 4 December 2014
|Property purchase price||SDLT rate from 4 December 2014|
|Up to £125,000||0%|
|£125,001 - £250,000 (Next £125,000)||2%|
|£250,001 - £925,000 (Next £675,000)||5%|
|£925,001 - £1,500,000 (Next 575,000)||10%|
Starting April 2016, Extra 3% stamp duty will be introduced for purchases of additional residential properties costing more than £40,000, such as buy to let properties and second homes.
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Annual London property tax also known as council tax is the main form of local property taxation. It is charged on domestic property and is collected by local authorities. Generally the higher price, the greater tax will be.
Each local authority keeps a "Valuation list" of all domestic property in its area. Property value are assessed annually and put into valuation band with corresponding charge.
If you are an investor and you rent our your property, council tax will be payable by the tenants.
Because the council tax rate is not fixed and it is assessed periodically, you can refer to https://www.gov.uk/council-tax/working-out-your-council-tax or you can check with the property consultant who are assisting you in your purchase.
Rental income tax
The London rental income tax rate is 20% after netting off all the allowable property related expenses.
Capital gain tax
For non residents, capital gain tax is a new London property tax that they are liable to pay. Starting from April 2015, non resident who dispose their London property needs to pay capital gain tax. If you have bought your property before 5 April 2015, whatever you gain before 5 April 2015 is not subjected to capital gain tax.
The capital gain tax rate depends your basic income tax band which is £31,871 for 2015 to 2016 tax year. If you fall into the basic income tax band, you will pay 18% capital gain tax. Any amount above, you will need to pay 28%. Moreover, there is £11,100 annual exempt amount for 2015/2016.
Everyone in 2015-1026 tax year has free tax allowance of £325,000. This allowance has remained the same since 2010-2011 and it will stay until at least 2017. Any amount above this threshold will be charged at 40% for inheritance tax. To avoid or reduce the amount of inheritance tax, when you buy London property, it is advisable to buy under 2 names or more because the threshold is for each individual.
Here is the list of allowable expenses you can deduct off to save your rental income tax:
- letting agents’ fees
- legal fees for lets of a year or less, or for renewing a lease for less than 50 years
- accountants’ fees
- buildings and contents insurance
- interest on property loans
- maintenance and repairs to the property (but not improvements)
- utility bills, like gas, water and electricity
- rent, ground rent, service charges
- Council Tax
- services you pay for, like cleaning or gardening
- other direct costs of letting the property, like phone calls, stationery and advertising
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