As many landlords will be aware, the government have over a number of years increased the tax burden of property ownership, particularly residential property, and from 6 April 2020 the government will now further reduce the deemed occupation period allowable under Principal Private Residence relief and remove Lettings Relief - which could considerably increase the amount of Capital Gains Tax a landlord will pay.
Property can still be a useful investment vehicle, and many people like this style of investment because it is tangible, however, given that the government is focusing on landlords, some may be considering if it is still worthwhile.
Whether you are intending to continue letting property, looking to alter your investment portfolio or sell property, there are a number of tax consequences to consider, including:
Loan Interest
Since 2017 the government has restricted the amount of loan interest relief available against rental income. As a result, from 6 April 2020 landlords will only be given a basic rate tax deduction of 20% - compared to 40% or 45% in previous tax years if you were a higher rate taxpayer.
Property Sales
Residential property sales are subject to Capital Gains Tax rates of 18% or 28% - compared to 10% or 20% for other investments. In addition, from 6 April 2020 the government will reduce other reliefs which are currently available if you previously lived in a property.
Reporting
Currently Capital Gains Tax is payable by 31st January of the tax year following the year of disposal, however, from 6 April 2020 there will be additional reporting requirements where the period within which to report the gain to HMRC for residential property sold will reduce to just 30 days.
Property Purchase
If you are considering purchasing an additional property there is also the higher Stamp Duty Land Tax (Land and Building Transaction Tax in Scotland) to consider.
Of course the above only highlights the potential tax implications of holding property and you also need to consider the return on your investment - especially when compared to the negligible savings rates you receive from banks currently. As with all investments, I would strongly recommend speaking to a financial adviser before any decision is made.
If any of the above issues are affecting you or you are considering selling or investing in property and are concerned about the tax implications please contact Scott McIver on 01387 955900 or email scott.mciver@armstrongwatson.co.uk
