Buy to Let

There is a variety of taxes that the investor will be required to consider when investing in buy to let properties including stamp duty and inheritance tax. There are some taxes that can be reclaimed against the tax on rents for buy to let properties such as "costs of maintenance, such as insurance, cleaning, gardening, agent’s commission and other reasonable management expenses (but not home improvements) and a wear and tear allowance of 10% of the rents received may be deductible." (Alan Harvey, 2006)
liable when, land or residential property is purchased where the purchase price is above 60,000, or where it is transferred and the outstanding mortgage amount is greater than 60,000. The rates of stamp duty vary between 1% for properties less than 250,000 and 4% for properties over 500,000. It is also worth noting that there are certain areas that are exempt from stamp duty, where the property is purchased for less than 150,000. (Weller and McTernan, 2006)
if at the time the other tax that the investor will be responsible is inheritance tax which is commonly referred to as the ‘gift’ or ‘death tax’. Weller and McTernan (2006) explain the inheritance tax:
if at the time of your death you pass on part or the whole of your estate then again the inheritor could be liable to pay Inheritance Tax. There is currently an IHT threshold level of 263,000 for the 2004-2005 tax year. Anything above this amount is taxed at 40% i.e. at the highest rate. This means that if at the time of death, your whole estate is valued at less than 263,000 then the inheritor will have no tax to pay. (Weller and McTernan, 2006)
The two things you can’t escape are death and taxes, but, why not make an investment work for the investor. By buying into the buy to let scheme, an investor’s main goal is to gain equity buy minimising what they will pay to the Inland Revenue Department. The investor’s objective is to minimise their capital gains tax liability through careful tax planning.
Minimising Capital Gains Tax
Capital gains tax is payable "if a property is sold for a higher price than what was paid for it, or when a property or part of a property is transferred to someone who is not your spouse." (Weller and McTernan, 2006). Thus "the capital gain is calculated by deducting the allowable costs and Inland Revenue tax relief’s, from the selling price of the property. Examples of allowable costs include property extensions, purchasing related costs etc." (Weller and McTernan, 2006).
As some investors fail to realise that when they sell their property, they could end up paying an extremely large tax bill of anywhere up to 40% of the net profit of the sale of the property.&nbsp. For instance, if you sell a property with a capital gain of £100,000, then £40,000 could go directly to the Inland Revenue Department.&nbsp.&nbsp.