Buy-to-Let Property Tax in Scotland: Key Rules for Landlords

Buy-to-Let Properties in Scotland: Key Taxes and Regulations

In Scotland, the landlords, who own the buy-to-let properties are exposed to several taxes and regulations. Here’s an overview of the key taxes and regulations that apply:

Land and Buildings Transaction Tax (LBTT)

The Land and Buildings Transaction Tax (LBTT) is an excise duty charged on ownership transfers in land and buildings in Scotland. To the buy-to-let investors, LBTT is important since an Additional Dwelling Supplement (ADS) of 4% is levied on top of the standard LBTT rates when purchasing a second home or an investment property. LBTT rates for residential property are 2% up to £250,000 and 10% up to £750,000.

Income Tax on Rental Income in Scotland

Scotland residents must pay income tax for the income they get from buy-to-let properties. It combines with any other personal income that one may be receiving such as wages, or pension, and is taxed at the rates set by Scotland. But herein, landlords can reduce their taxable rental income based on allowable expenses.

• Starter rate: 19%: £12,571 – £14,732
• Basic rate: 20%: £14,733 – £25,688
• Intermediate rate: 21%: £25,689 – £43,662
• Higher rate: 42%: £43,663 – £125,140
• Top rate: 47%: Over £125,140

Capital Gains Tax (CGT) on Buy-to-Let Property in Scotland

Any buy-to-let property owner will incur a liability to pay CGT on the sale of the property, as long as it was sold for more than its purchase value in Scotland. Even as Scotland has its income tax regime, CGT rates are guided by UK regulations. Since penalties may be imposed for noncompliance with CGT regulations, careful preparation is crucial.

• 18%: Basic rate taxpayers
• 28%: Higher or additional rate taxpayers

Private Residential Tenancy (PRT) Rules

The Private Residential Tenancy (PRT) arrangement, which offers renters a great deal of protection, is required for all new leases in Scotland. One crucial component of PRT is the “notice to leave” which requires landlords to provide the correct notice based on the reasons for eviction such as selling the property or the tenant's unpaid rent. With three months' notice, rent hikes are permitted once every twelve months.

Council Tax on Buy-to-Let Properties in Scotland

Council Tax is payable on most of the houses in Scotland, including the houses that are let for rent. However, the rules around who pays Council Tax whether a tenant or the landlord, might differ especially in the case of unoccupied dwellings or HMOs. These obligations are important to comprehend for landlords so as not to get caught up in bills or fines they were not aware of.