If you own residential property that you let out to tenants, it is important that you take note of forthcoming changes in taxation.
These major changes due to come into force in April 2020 will have a serious impact on the amount of tax you will have to pay if you are selling or continuing to let residential property.
You must take note of these changes to assist you in deciding whether to continue as a landlord.
Please do not take this as investment advice – this is not advice to sell property, just advising of the changes so that landlords can make an informed decision. Before any decision is made to sell a property, please weigh up all the factors – not just tax.
Lettings relief is currently available to landlords who previously occupied a property as their Principle Private Residence, but who now let that property. Where a property is owned jointly (eg by husband and wife), this relief allows up to £80,000 (£40,000 per person) to be offset against the capital gain. This can reduce the Capital Gains Tax liability by over £22,000.Lettings relief is being withdrawn on 05 April 2020.
If a property is sold after this date, the full tax will be payable, with no Lettings Relief deduction. It does not matter how long the property has been owned.
Capital Gains Tax on sale
When selling after 06 April 2020 you will have 30 days from the date of sale to pay your capital gains tax (previously you had up to 20 months to pay the tax arising). Although this is only a cash flow advantage, it is a very useful feature of the current taxation system. HMRC are simply desperate to bring forward the collection of taxes and to avoid the risk of taxpayers not actually paying the tax when it falls due.
Under the new regime, it is anticipated that the selling solicitor or conveyancer will submit the CGT return to HMRC and ensure that the client pays the tax from the proceeds of sale.
Mortgage Interest Relief
From April 2020 there will only be tax relief at 20% of all interest on mortgage properties. There will be no more partial allowances once the transition period has ended. For higher rate paying landlords, particularly if there are heavy borrowings on repayment mortgages, the tax liability arising could, in some cases, exceed the cash flow generated from renting.
Increased Legal Protection for Tenants – end of “No Fault” evictions
The Government is currently consulting on the abolition of the Section 21 evictions, which will greatly reduce the abilities of landlords to evict tenants at the end of their contract term. Whilst the full details have yet to be worked out, it is considered likely that there will be a major change in legislation in order to provide greater security for tenants and their families.
This is a great social aim and should be applauded from a societal viewpoint. However, it may mean that being a landlord will become much less appealing once the legislation comes into force. At present, there is no date for the implementation of this change.
BUT
Don’t Forget Market Forces
However, in an already struggling property market, it is likely that a sudden flood of properties on to the market will simply drive prices down even further. It is not impossible to imagine selling a property at the bottom of the market simply to save tax, but ultimately being worse off.There are no easy answers, and it is up to each landlord to make a choice.We can advise on the tax implications of the decision, but we cannot advise you to “stick or twist”!
All information contained in this document are correct at the time of writing. Legislation and regulations may change at any time.If you are in any doubt, please call us for clarification.
About us: Leggate Associates Limited was formed by Andrew Leggate LL.B FCMA FCA CGMA who has over 35 years of tax and accountancy experience in industry and practice, and the practice is managed by Joanne Leggate FMAAT ATT. Our clients range from building subcontractors to multi-million pound concerns and high net worth individuals all over the UK. Please see our website www.leggateassociates.co.uk or follow @LeggateAssoc on Twitter for occasional updates.
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