I’m worried about the Government’s plans to double council tax on second homes. My girlfriend and I both separately own a one-bed flat each.
We are ready to take the next step in our relationship and move in together and use my flat as our main home. Rather than sell her flat, we would like to keep it as an investment and let it out.
In order to switch it to a buy-to-let mortgage I need to put in an extra £10,000 and the plan is to make it a joint mortgage.
![](https://topnews.media/wp-content/uploads/2024/04/82856823-13224501-image-a-1_1711365218173.jpg)
From left to right: Henry Lowe, partner at accountants Mercer & Hole, Jessica Cowell, head of lettings at Hamptons in Putney, Alan Knightly, senior head of lettings at Hamptons City branch
But this will mean I have two mortgages and essentially two homes. Will this then make us liable for double council tax?
I’m also interested in understanding whether keeping the property as a rental would be a good investment and what the potential tax implications are?
Ed Magnus of This is Money replies: It is true that second homeowners could see their council tax double from April 2025.
However, this will be aimed at those who leave their homes empty for long periods of time. It shouldn’t apply to you and your girlfriend who intend to let the property out.
Councils will soon have the ability to charge an ’empty homes premium’ if a home is left empty for 12 months or more.
Earlier this month, The Department for Levelling Up, Housing and Communities announced it would allow councils to charge double council tax on properties after 12 months of being empty.
This is down from a two-year grace period that was outlined the Levelling Up and Regeneration Act, which was made law in October 2023.
However, each council must wait at least a year before bringing the extra charges in, so the earliest the new rules will happen is April 2025.
How much you pay will depend on how long the property is left empty.
For example, you could be charged three times your normal council tax bill if your home has been empty for five years or more.
The council will consider the home empty unless you furnish it and occupy it for more than six weeks in a row, according to the HomeOwners Alliance.
The rules are different in Scotland and Wales, so check with your council to see what’s happening in your area.
Buy-to-let has been hit by a series of tax raids in recent years, but property investing still remains popular with those who like the familiarity of bricks and mortar.
Perhaps one of the most painful of recent tax changes to hit landlords is the loss of mortgage interest relief.
Previously, a landlord with mortgage interest payments could take off that entire cost before calculating their tax bill on the remaining profit. This meant they got relief at their highest tax rate.
Now, the mortgage interest is not fully deductable before paying tax, albeit you’ll get taxed at 20 per cent on the slice of your rent equal to your mortgage interest costs.
Tax year | Annual rental income | Annual mortgage interest | Rental income that is taxed | Tax on rental income | Mortgage interest relief | Net profit after tax |
---|---|---|---|---|---|---|
2016/17 | £12,000 | £4,800 | £7,200 | £2,880 | £0 | £4,320 |
2017/2018 | £12,000 | £4,800 | £8,400 | £3,360 | £240 | £4,080 |
2018/2019 | £12,000 | £4,800 | £9,600 | £3,840 | £480 | £3,840 |
2019/2020 | £12,000 | £4,800 | £10,800 | £4,320 | £720 | £3,600 |
2020-now | £12,000 | £4,800 | £12,000 | 4,800 | £960 | £3,360 |
You’ll also have to factor in letting agent costs, if you decide to use one, maintenance costs and various regulatory fees, including gas and electrical safety checks.
The property also needs to have a minimum Energy Performance Certificate rating of E in order to be let.
However, if you’re a comfortable with all the tax and regulatory requirements, historically property has risen in value over the long term – of course in some locations it performs better than others.
If you live in an area where people want to live and work and which is close to decent transport links, then the chances are you’ll attract tenants.
Rents also tend to rise over time. In fact, Zoopla reported earlier this month that average UK rents have risen by 29 per cent since just before the start of the pandemic.
![On the up: The average rent in Britain was £948 a month in January 2020 and is now £1,223](https://topnews.media/wp-content/uploads/2024/04/81358863-13224501-HomeLet_s_experts_are_still_predicting_that_rental_costs_could_r-a-25_171112094852.jpeg)
On the up: The average rent in Britain was £948 a month in January 2020 and is now £1,223
For expert advice we spoke to Henry Lowe, partner at accountants Mercer & Hole, Alan Knightly, senior head of lettings at Hamptons City branch and Jessica Cowell, head of lettings at Hamptons in Putney.
Will they be liable to pay extra council tax?
Jessica Cowell: In terms of council tax, if they’re letting their property to a long-term tenant then the renter pays the council tax themselves.
They just have to pay council tax on their main residence. Although, if the buy-to-let is empty (i.e. between tenancies), then they’ll be liable.
Henry Lowe adds: Your rental agreement should set out who pays council tax.
Typically, it’s the tenant, but some tenants are exempt, for example full time students. Check with your local authority first before deciding who to rent it to.
Is buy-to-let a good investment?
Alan Knightly replies: With rents generally at all time highs over the last 12-24 months, landlords have been reaping good incomes from their rental investments.
However this has been offset somewhat by two key factors – multiple interest rises since 2022, affecting monthly outgoings, and high inflation having a marked effect on key landlord costs – namely by higher maintenance costs and service charges.
The good news is that inflation is quickly falling and as such the expectation from the financial markets is that the Bank of England will follow suit in lowering interest rates two or three times by the end of 2024.
In addition, we expect rents to maintain their current high levels, meaning that landlords should expect to see more return from their investment in the near future.
![Rental pressures: Alan Knightly of Hamptons says he expects rents to stay high](https://topnews.media/wp-content/uploads/2024/04/82778523-13224501-image-a-26_1711121203756.jpg)
Rental pressures: Alan Knightly of Hamptons says he expects rents to stay high
Jessica Cowell adds: Although it depends slightly on the area, keeping hold of property is generally a good idea as you obviously hope for capital appreciation over time.
Renting out the property can also allow the tenant to help pay down the mortgage, turning a potential sunk cost into an income-generating asset.
While quick returns shouldn’t be expected, buy-to-let investments generally require a long-term horizon for steady and substantial returns across the UK.
Despite high current interest rates, rents in Britain have recently seen the highest increase in a decade.
This trend highlights strong rental demand and the potential for robust rental yields, offsetting higher borrowing costs.
![To those who wait: Jessica Cowell of Hamptons says buy-to-lets require patience to pay off](https://topnews.media/wp-content/uploads/2024/04/82778519-13224501-image-a-22_1711119446453.jpg)
To those who wait: Jessica Cowell of Hamptons says buy-to-lets require patience to pay off
What are the tax implications?
Henry Lowe replies: On the wider tax implications, when you rent out a property you will have to pay income tax on the rental profit after certain expenses, which include letting agent fees, repairs and maintenance.
There is a flat rate property allowance of £1,000 per year that might be easier to claim if your expenses are less than or around about this figure.
You will need to submit tax returns to pay the tax. A tax reduction can be claimed for the mortgage costs but only on 20 per cent of the interest, so this should be factored into your choice of mortgage.
To obtain a joint mortgage both of you may need to own part of your girlfriend’s flat.
Depending on which of you is the higher earner you need to think about how you share the ownership, as the split of taxable income will be in proportion with your beneficial ownership.
A deed can be used to transfer a percentage of the flat ownership to you. Even if no money changes hands, the transfer will be treated as a disposal for Capital Gains Tax (CGT) at the flat’s market value.
![Taxing demands: Henry Lowe of Mercer & Hole says landlords must stay on HMRC's good side](https://topnews.media/wp-content/uploads/2024/04/82778521-13224501-image-a-21_1711119438278.jpg)
Taxing demands: Henry Lowe of Mercer & Hole says landlords must stay on HMRC’s good side
The good news is that, assuming this has been her main residence, then no CGT should be due.
You may still be liable for Stamp Duty Land Tax (SDLT) if you take on part of your girlfriend’s mortgage.
If your girlfriend decided it would be better to transfer ownership of the rental property to a limited company, which might be beneficial if a more substantial future lettings business is envisaged, CGT would normally be a cost.
Again, in this instance, as it has been her main residence, she shouldn’t have to pay it, but there may be SDLT to pay by the company.
The mortgage would need to be held in the name of the company and not your girlfriend.
When thinking about the future sale of property that hasn’t been your main residence, note that from 6 April 2024, the rate of CGT falls from 28 per cent to 24 per cent for higher rate earners.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.