More challenges ahead for property investors and landlords
6th August 2019
Whether you consider yourself a property investor or an accidental landlord, there are more changes on the horizon, which affect how your capital gains and rental income will be taxed. Some of these changes will directly impact how and when you file and pay tax, and what reliefs you can apply for, so it’s important to stay on top of the changes being introduced.
Letting Relief removal
One of the biggest changes affecting those who now rent out a property they once lived in is the impending removal of Letting Relief. Currently, up to £40,000 of lettings tax relief per person can be applied to the capital gain on an additional property you once lived in. When applied to couples, this can result in tax relief of up to £80,000 depending on the gain. From April 2020, Letting Relief will cease except for those in shared-occupancy with a tenant.
Letting Relief is calculated in relation to Principal Private Residence Relief (PPR), which itself will see changes introduced from April 2020. PPR can be applied to the period you lived in the property, and currently also applies to the last 18 months prior to sale. This final period exemption will reduce to nine months from April next year (except for those who are disabled or living in a care home).
Tight turnaround for Capital Gains payments
Another change that could catch owners out is a change in the payment date for Capital Gains Tax (CGT) for UK residents and non-UK residents disposing of UK property.
Rather than simply including CGT from a property sale on your self assessment return, a separate return detailing the disposal must be delivered to HMRC within 30 days following the completion of the disposal, with a payment on account made at the same time. Reasonable estimates can be used where actual information is not available before the payment deadline, but a corresponding payment must be made within this tight timeframe.
The changes will apply to disposals on or after 6 April 2019 for non-UK residents or after 6 April 2020 for UK residents.
Given the short timeframes and potential complexity, it’s really important to alert your accountant as early as possible if you’re planning a property sale so we can help ensure you are compliant with these changes.
For those maintaining a property portfolio, it’s worth remembering that the amount of tax relief that can be applied to the financing costs associated with a rental property is reducing. Since April 2019, landlords have been able to claim 25% of finance costs as a deduction against income, with the remaining 75% given as a basic rate tax reducer. However, from April 2020, all financing costs incurred will be given as a basic rate tax reduction, meaning that some landlords will face an increase in their tax bill.
For more information on any of these changes and to discuss your options, please contact our tax team on 01926 422292.