The tax impact of a number of previous announcements collectively will have significant consequences for Landlords. We have listed these below:-
1. Mortgage interest relief restrictions have been phased in over a 4-year period which has now come to an end. So from tax year 2020/21 it will no longer be possible to reduce rental profits with mortgage interest costs. Going forward the maximum potential tax relief is 20% of the mortgage interest costs and any qualifying relief will reduce the annual tax liability. Please note that there is a yearly calculation to be undertaken to determine if all or any of the 20% relief is available in a tax year. Any unused relief is carried forward to future periods. Alert: The moving of this relief to be a tax reducer instead of a rental deduction relief could have an impact on an individual’s adjusted income figures for the year and therefore could trigger a clawback of child benefit through the high income child benefit charge rules.
2. From 6 April 2020, a pay and file deadline of 30 days from the date of completion will be introduced on the sale of UK residential property. If an individual makes a capital gain from selling residential property which is not covered by an exemption or relief they will have to declare and pay an estimate of the CGT within 30 days of completion. This should not impact properties which qualify for full principal private residence relief. Tip: if a capital gains calculation is required, please gather together all the information needed as early in the process as possible to assist with preparing CGT calculations. This scheme will be similar to the existing 30 day scheme already in place for non residents selling or disposing of interests in UK property or land. A new HMRC online service is to be available from 6 April 2020.
3. Finance Bill provisions* - final deemed period of residence - If an individual has lived in a property as his/her home at any time then they will most likely qualify for the final deemed period of residence for principal private residence relief rules. From 6 April 2020 the principal private residence relief becomes less generous as the final deemed period of residence reduces from 18 months to 9 months (a few exceptions).
4. Finance Bill provisions* - lettings relief - If an individual has lived in a property as their home at any time and have let the property out over the ownership period then historically they would have been entitled to lettings relief which could be as much as £40,000 (£80,000 per couple). From 6 April 2020, lettings relief will only apply where the property is shared by the owner and the tenant. This change dramatically shrinks the group of landlords that will qualify for this relief. Lettings relief accrued before 6 April 2020 cannot be banked and instead will be lost.
*Finance bill 2020 was published on 19 March 2020 and has not yet been enacted therefore points 3 and 4 above are subject to the passing of the Act by way of Royal Assent.
If you have any questions in relation to any of the above, please do not hesitate to contact us on 028 406 30876.