Buy to let mortgage tax issues UK
Buy to let mortgages: tax implications

If you have a second property that you are letting out, then this means that you're getting a second income on which you must pay income tax. Tax is levied on the profit that the property makes, which is calculated as the gross rental income minus any costs that relate specifically to the running of the property. Deductible costs include the following:

Management or letting agent's fees: tax breaks may mean that it actually pays to have someone else managing your property.

Insurance: any insurance policies directly affecting the property (such as building or public liability insurance, plus policies covering white goods) can be written off against your tax bill.

Maintenance: repairs and maintenance carried out on a property are tax deductible, but exactly what you can and can't do is something of a grey area. As a rule of thumb it's fair game to replace like with like, as long as you steer clear of improvements (hence if you're intending to replace a tatty bathroom suite forget about the new spa-bath, bidet etc).

Wear and tear: if you're letting a furnished property you will be able to claim 10% depreciation on all your furnishings (but not fittings).

Anyone who takes out a buy to let mortgage is able to offset interest payments against tax (but not capital payments), which makes interest only mortgages an attractive proposition. However, if you're using your second property as a savings vehicle (for example as an alternative pension) then a repayment mortgage can make more sense; certainly in terms of security.

Don't forget that when you sell the property you will also have to pay Capital Gains Tax on any capital accrued. The laws relating to Capital Gains Tax are mind-bogglingly complex and to ensure that you're not paying over the odds it's best to seek financial advice.

 

 

 

© AskFinancially.com 2008

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