Capital Gains and Rental Review Tax Changes
The taxation of UK residential property has changed over recent years as successive Governments have made it clear that they wish to take advantage of its increasing value. The most recent budgets have implemented changes to property taxation which have changed rules in respect of Capital Gains Tax and interest relief. The effect has been to increase the tax taken from property income and gains and also to discourage the purchase of buy-to-let properties.
Capital Gains Tax – New notification deadline on taxable disposals
From 6 April 2020 the new Capital Gains Tax regime will require a return to be made to HMRC within 30 days of the date of completion of the transaction where there is any direct or indirect disposal of UK residential land by a UK resident, resulting in a taxable gain. This will substantially increase the number of UK land returns required to be filed. Calculating the Capital Gains Tax due will be difficult if the base cost is not readily ascertainable, or the income of the taxpayer fluctuates annually across the rate bands.
Reduction to Principal Private Residence Relief
For disposals after 5 April 2020 the final period exemption allowing PPR for the last 18 months of ownership, provided that the property has been your main residence at some point, will be reduced from 18 to 9 months.
Lettings relief will cease to be available to those who share occupation of their house with a tenant, or have let the property at some time during the period of ownership for all disposals made on or after 6 April 2020.
The phase down of interest relief
Starting in 2017/18 tax relief on interest paid on loans used to purchase or improve let residential properties was phased out. The restricted amount of loan interest for individual landlords will be 100% for the 2020-21 year. Relief for loan interest will only be available as a 20% tax reducer against rental profits.
Other considerations:
Since 6 April 2017 (individual) landlords have been required to report their rental income and expenditure on a cash basis unless the gross income is in excess of £150,000. Prior to this, landlords had to report their rental profits on an accruals basis unless their gross receipts did not exceed £15,000. Landlords may still elect to be taxed on the accruals basis if they wish.
Rent a Room relief
Rent-a-room relief provides a tax-free amount of rental income that can be received for letting furnished accommodation in the taxpayer's own home. The limit of the has been £7,500 per annum since 6 April 2016.
The £1,000 tax-free property allowance
From the 6 April 2017, a property allowance was introduced for individuals, in place of an expenses claim. so even if you have no expenses to allocate against your rental income you can claim the £1,000 allowance each year. It will however generally be more beneficial to claim the actual expenses.
If you are affected please do not hesitate to contact our tax advisers who will be able to provide advice appropriate circumstances or alternatively find out more about our Tax and VAT services.
This information is intended as a general overview of Rental Review & CGT changes. It is important that professional advice is sought on specific issues relevant to your personal circumstances and the legislation in force before any action is taken.