Income for dealing

If you are dealing in property then you will pay Income Tax only when you sell your property.

The general rule for calculating your Income Tax liability is as follows:

Property Selling Cost - (Property Purchase Price + Buying Costs + Ongoing Property Related Costs + Selling Costs) = Taxable Profit

Tax calculation for a property dealer

Mr Jo Jaffa buys a property for £20,000. He spends £600 on buying costs (i.e. solicitors' fees etc). He then spends £15,000 refurbishing the property before he sells it for £60,000. His selling costs are £400.

His taxable profit is calculated as follows:
£60,000 - (£20,000 + £600 + £15,000 + £400) = £24,000 Taxable Profit.

Income for Investing

If you are investing in property then you will pay Income Tax on an annual basis.

The general rule for calculating your Income Tax is as follows:

Rental Income - Ongoing Property Related Costs

Tax calculation for a property investor

Mr Jo Jaffa buys a property for £100,000. He receives £12,000 annual rental income and has annual costs of £7,000.

His annual taxable profit is calculated as follows:
£12,000 - £7,000 = £5,000 Taxable Profit.