You & your family
The 2019-20 tax year is the third year of a four year phased implementation of the Chancellor’s strategy to restrict the tax relief residential landlords gain on finance costs.
With property taxation having become increasingly complex, landlords are feeling the burden of greater rules and higher rates of tax. From the loss of higher rate tax relief on the finance costs related to letting residential property, to higher rates of Capital Gains Tax and the changes to Letting Relief of a main residence, many landlords are unsure of their tax position. We can help you to understand the options available whilst ensuring these support both your short and longer term goals.
As a landlord, if you receive rental income and incur related expenditure, you will need to complete a Self Assessment tax return and inform HMRC by 5 October following the end of the tax year (6 April to 5 April) in which you begin to rent out a property. Failure to do so can result in penalties.
Mortgage interest relief restriction
From 6 April 2017, the higher rate relief for interest on loans for residential properties is being restricted until it is completely removed by 2020. This affects all higher rate and additional rate taxpayers who receive rental income on properties that have mortgages outstanding on them. For a higher rate taxpayer, this will increase your annual tax bill by £4,000 for every £20,000 of interest paid, even if there is no rental profit made.
Non-resident landlords and indirectly held UK property
From April 2015, non-UK residents became subject to UK Capital Gains Tax on the sale of a residential property situated in the UK. The rules do provide the option of rebasing the cost of the property to the market value at April 2015, meaning any property purchased some time ago would benefit from an uplifted based cost. You must report any capital gains within 30 days of the conveyancing even if you already complete a UK Self Assessment tax return.
Jointly owned property
Most jointly owned properties are held as joint tenants where each of you own half of the whole of the property. Your share would then normally pass to your spouse on death and this would overwrite any differing instruction in your Will. This might not be the best way to own rental property for a number of reasons. On death it can increase the survivor’s estate unnecessarily and generate higher Inheritance Tax bills and it can prevent you from sharing rental income in the most tax efficient way.
Principle Private Residence and Letting Relief
Currently, if you let a residential property you have once lived in and decide to sell it, you could benefit from up to £40,000 Letting Relief (£80,000 if joint owners and you both lived in the property), to reduce your taxable gain. This has been a valuable relief for many years, and is especially helpful to those couples who each had their own home and then move into one and rent the other.
However, from April 2020 you will only be able to claim Letting Relief if you are still living in the property at the time of letting. This could make a significant impact for landlords who have banked on this relief reducing their Capital Gains Tax exposure. Many people may consider selling such property before these rules come into effect.
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