What taxes will you pay when investing in real estate in the UK?

While investing in real estate in the UK can be a good decision for many, one thing some people forget about in the excitement to buy property is, yes, they will have to pay taxes.

Taxes on real estate in the UK are higher than in many other countries which means, before you become a new property owner, make sure you know how much your tax bill will be every year. It might be a lot more than you expect.

How many kinds of property tax are there?

Nobody ever said investing in real estate was easy, and it certainly isn't in the UK if you factor in the money you'll be forking out to Her Majesty's Government. In fact, by the time you've realised there are four different taxes you may have to pay, your enthusiasm might be a lot less, well, enthusiastic.

Stamp Duty Land Tax - The Stamp Duty Land Tax (SDLT) is a tax you pay in the UK if you purchase property or land above a certain value. The tax itself is between 1-5%, depending on the value of the real estate you buy.

As that value is low (currently anything valued at more than £125,000 you must pay SDLT on), a huge percentage of British property buyers pay it. The only positive thing here is, if you're a first-time home-owner ie: buying property for the first time, the value of real estate you'll have to pay SDLT on gets bumped up to over £250,000. That, however, could change, so double-check before you purchase.

Council Tax - Of course, investing in real estate in the UK doesn't stop with the national government, the local authorities want their cut too. The Council Tax is the tax you pay to the local council, and that amount depends on where in the UK you live.

Income Tax - If you buy real estate as an investment and it increases in value, you will have to pay income tax on that increase. The only way you get out of that is if you actually live in the property and then it's technically not an investment, it's your home.

Capital Gains Tax - Of course, like most real estate investors, you'll probably eventually want to sell. That's when you'll also get hit with Capital Gains Tax if you've actually made a profit on your investment. But, if you have, that may not be quite as biting as the other three taxes.

Is UK real estate a good investment?

Unlike many other countries, even during the last few years of a devastated world economy, British real estate prices have stayed relatively stable. That's why many people still think investing in real estate in the UK can be a good risk.

In fact, in a recent poll, more than half of British consumers still had confidence in the British housing market and felt, if investors were careful, it could be a good market to buy into.

Like any investment. though, do your research well before entering the market and, remember, there are no guarantees.

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