We received a number of questions recently regarding the tax changes in 2020/2021 for buy to let landlords so we have decided to highlight a number of key points in this article. Please remember we are not a tax advisor, please seek professional tax advice if need to take your queries further, or we can put you in touch with our tax specialist.
Landlords need to be aware of the buy-to-let tax changes that have come into force as of the start of the new tax year for 2020/2021. Whilst these changes have been on their way for some time, investors should ensure they are aware of the finer details.
Mortgage interest tax relief
The government has been slowly changing the tax relief on mortgage interest since 2017. A buy-to-let mortgage once offered landlords a major tax advantage – this is no longer the case.
As of April 2020 landlords will only be able to offset 20% of their mortgage interest when filing their annual returns.
Landlords are no longer able to deduct mortgage expenses from rental income and instead will receive a tax credit based on 20% of the mortgage interest paid.
This is far less generous for higher-rate taxpayers who were previously able to claim up to 40% tax relief on mortgage payments.
Capital Gains Tax
This tax year also brings a change to how Capital Gains Tax (CGT) is to be paid. CGT is usually payable when a landlord makes a profit selling an investment property, how much is owed is calculated on the size of the profit and the landlord’s financial circumstances.
Landlords have previously been able to bide their time and declare and CGT liabilities in the next annual tax return giving them over a year to pay.
This has now been changed and investors must declare and CGT liabilities within 30 days of selling a property.
Capital gains tax relief
There are also changes coming about that affect a small proportion of landlords who once lived in the investment property themselves. These tweaks won’t apply to the vast majority of investors but are worth understanding nonetheless.
CGT private residence relief
For landlords who once lived in their property, capital gains tax is not due for the time the investor spent living in the property. Even if a landlord doesn’t live at the property for the final 9 months of owning it they will be exempt from paying CGT for this period of time.
This period has been reduced; prior to the 2020/2021 tax year, an investor could be exempt from CGT for the final 18 months of owning the property even if they did not live there.
CGT Letting Relief
Landlords who previously lived at their investment property could also benefit from up to £40,000 in CGT relief when selling.
Previously this relief could be claimed even if the landlord hadn’t lived in the property for many years, under new rules effective from this tax year, however, investors will need to live at the property at the point of selling to make this claim.
Capital Gains Tax if you live abroad
If you live abroad and are selling your buy-to-let property, from 6 April 2020 you will need to report and pay the non-resident Capital Gains Tax using the government’s online system.
Even if there is no amount payable, you made a loss not gain or you’re registered for self-assessment you will still need to report the sale online within 30 days of completion or you might face a financial penalty.
Landlord tax return
The changes have been brought into action as of the current, 2020/2021 tax year. The self-assessment deadline for this tax year is 31 January 2022.
The next tax year to be filed is the 2019/2020 tax year, which ended on the 5 April 2020. The deadline for filing that tax year is 31 October 2020 for paper returns and no later than 31 January 2021 online.
Deducting expenses
These changes, unsurprisingly, are not particularly popular with investors – there are though still plenty of costs that can be offset including maintenance costs, landlord insurance and estate agent fees.
Expenses such as the cost of services that the tenant benefits from, including service charges and accountant fees are also allowed to be deducted.
Costs that are incurred entirely and exclusively due to the property being rented out can be deducted and can reduce a landlords tax bill.
Renting property in the UK
If you’re unsure of your position, what is owed when, how to file your tax return, what can be deducted and generally how to put yourself in the best possible position for tax purposes we would always recommend to speak with a knowledgeable accountant who has experience working with buy-to-let investors.
Buy to let investment property
If you’re looking for a rental investment property our team of advisors would be delighted to guide and advise you on the best opportunities in the UK in the present market. To talk to us call +44 (0) 2039507939 or send us an email at [email protected].
