TAXMAN’S PERSISTENT RAID ON LANDLORDS CONTINUES…
We take a look at some of the key property tax changes taking effect from 6 April 2020.
If this blog raises questions and you’d like to hear how we can help you with any of your property tax issues, we would welcome your contact on either email@example.com or 01482 888820
Capital Gains Tax – 30 Day Payment and Reporting Deadline
The reporting and payment of capital gains tax on residential properties changes fundamentally. From 6 April onwards a brand new tax return needs to be filed, and the CGT must be paid, both within 30 days of completion.
Taxpayers will have just a few weeks in which to calculate the gain, whereas previously they would have had at least 10 months to do this. Late returns will attract penalties and late payments will generate interest. Those with sales likely to complete after 5 April are advised to get in touch with their accountants well before the sale takes place so information can be collated in advance.
This doesn’t affect properties fully covered by main residence relief. These sales still don’t generate any capital gains tax and a tax return is not required.
The rationale behind these changes is simply that the treasury want the tax collected sooner.
Key Property Capital Gains Tax Reliefs Reduced or Removed
For those currently entitled to partial main residence relief (where the property has been main residence for part, but not all of, the ownership period) sales from 6 April are likely to generate higher capital gains tax bills than previously. The ‘bonus’ notional entitlement period has been cut in half, plus the related ‘lettings relief’ which can reduce the tax bill further if conditions are met, is being effectively abolished.
Loan Interest Relief Transition Period Ends
From 6 April onwards loan interest is no longer deductible when calculating rental profits. Instead, a fixed 20% tax credit is available. Most basic rate taxpayers will be unaffected, but those paying at higher rates (or those close to higher rate thresholds) will see their income tax bills increase. These rules were being gently phased in over the last few tax years but will be fully implemented from 6 April onwards.
These changes to property tax form part of a sustained attack on landlords’ pockets through new legislation. They come in addition to previous changes to SDLT (effective since April 2016) which made the acquisition of second or subsequent properties more expensive because of the additional 3% SDLT surcharge levied on purchases.
As a whole, the outlook of these tax changes is perhaps a little gloomy for property investors.
However, another rule change which has been gradually implemented but reaches conclusion in April is the increase to the Residential Nil Rate Band, which rises to £175,000. This now means that, if the circumstances fit, a couple can potentially have coverage of up to £1m worth of assets within their Nil Rate Bands, before Inheritance Tax kicks in.
So, while some property investors will be paying more tax on the acquisition, rental, and sale of properties, conversely some will have less Inheritance Tax exposure.
Contact firstname.lastname@example.org or 01482 888820