Tax can be tricky.

While it’s important to pay what you need to, it makes no sense to pay more than that. And, in fact, your tax liability can be the difference between profit and loss for your investment. So, quite literally, it pays to be tax-efficient.

That’s why we’ve written this handy series – to help you learn easily, invest confidently, and finally feel tax-triumphant.

At what stage will you pay tax?

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:

1. When you purchase

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):

Note: Different taxes and rates apply to investment properties in Scotland and Wales.

2. When you make profits

How you purchase your property will affect the type of tax you pay on your profits. But you’ll always pay some kind of tax on 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. 

3. When you sell

If you sell a buy-to-let property for more than you bought it, you’ll need to 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.

To get a free personal consultation on your buy to let investment journey, book a meeting with one of our experts here.