What is Property Tax?
Property Tax is a tax which is levied on property and payable by the owner.
What taxes will you face?
There are three types of tax which are specific to property, they are Council Tax (for residential property), Business Rates (for commercial property) and Stamp Duty Land Tax. It is important to note however, that due to the fact it may initially appear that only a small amount of taxes will apply to property tax, this is far from the truth, property investment is exposed to a huge range of UK taxes.
For example, tax is imposed when property is purchased (Stamp Duty Land Tax), rented out (Income Tax) and then sold (Capital Gains Tax). Tax is also imposed when goods or services are purchased (VAT), when investments through a company are made (Corporation Tax) and unfortunately even when they pass away (Inheritance Tax).
For those classed as Property Traders or Developers, Income Tax and National Insurance will be paid on profits gained from their property sales, or should they be using a company, Corporation Tax will be paid instead. It is also important to note that Property Developers must also account for tax under the Construction Industry Scheme when sub-contractors are used, this applies to even the most routine building work.
If an investor reaches the point where they decide to employ someone to help the business function more efficiently, they will have to pay PAYE and employers National Insurance. Insurance Premium Tax would also most likely be paid, as would Road Tax and duty on petrol bought. Should air miles be accumulated, Air Passenger Duty would also be due.
When faced with this complex and often confusing list, potential investors can be put off, however below we have listed the most important taxes which will apply should you choose to become a property investor.
Which taxes are the most important?
For the majority of property investors, Income Tax and Capital Gains Tax will comprise the majority of any potential tax burden. It will however depend on what type of property investor you are to determine exactly how these taxes will occur.
There are several different categories into which a property business can fall, and it is crucial that you understand how your business will be classified before any attempt at tax planning can be done.
National Insurance will form an additional layer of Income Tax for some classes of investor, Stamp Duty Land Tax and VAT may also have a significant impact.
For investors using a company, Corporation Tax could be of greater importance, Inheritance Tax is also likely to be a major concern for the majority of property investors.
There are many pitfalls in property investment, and it is vital to understand how your investment will be defined and what category it will fall under. If you require any guidance or advice on the subject, then we’re here to help.