Investors

When buying a property with the sole intention of doing work to it to sell on and make a profit there are a number of important things to be taken into account. First of which, is how much you believe a house will be able to achieve on the open market if the work is to be done to it and how much that work will cost. This is key in calculating how much you can afford to pay for a property to turn a profit you are willing to put the work in for. These are not the only costs to be consider though. You also need to consider costs such as taxation (see section below), planning fees and borrowing costs.

Over the last number of years there has been a variety of changes in the tax rules all of which are more detrimental to property owners and largely result in more tax being due. When tax is taken into consideration your property gains can be substantially reduced and can affect your cashflow.

Generally, property owners need to consider three taxes during their period of ownership of a property.

Is due when you purchase a property and is a cost you should always factor in when assessing the affordability of the property. Stamp duty is paid at different rates depending on the value of the property being purchased as per table below. If you purchase a second property, there is typically a surcharge of 5% added to the stamp duty rate. Stamp duty must be paid within 14 days of the effective purchase date and a Stamp duty land tax return filed within 14 days. Penalties apply for late payment of the tax and submission of the return.

Is payable on any rental profits you make from your properties. The rate of tax payable (20%, 40% or 45%) is dependent on your other income. There are restrictions in place that only allow  tax relief on mortgage interest payments at the basic rate of tax.

Due when you sell your properties. You must a return within 60 days of the sale of residential properties and pay the tax due otherwise penalties will apply. Tax is payable at either 18% or 24%  dependent or your level of other income.

It is important you keep records of all expenditure incurred on the property as this can be added to the purchase price when calculating any gain made. The above does not constitute tax advice and is only a brief summary of the main tax implications. Please always seek professional advice before purchasing or selling your property as you could end up playing more tax than necessary or potentially paying penalties for late filing of statutory required returns.