Tax planning for landlords, a tax round-up of the year 2020

This year has been challenging for all of us but another issue that landlords need to address is the tax changes that have also taken place this year or are planned for next year. Landlords should consider the implications of these tax changes according to their own personal circumstances.

Throughout the year we’ve been keeping you updated about these tax changes in our regular blogs but to make life easier, we’ve summarised them below.

Temporary Stamp Duty holiday

We’ll start with a positive tax change – the temporary Stamp Duty Land Tax (SDLT) holiday which applies to buyers completing on a property before March 31st 2021.

For properties valued at up to £500,000, buyers will not pay any Stamp Duty.

For properties costing from £500,001 to £925,000, SDLT is 5% of the portion above £500,001.

For properties costing from £925,001 to £1.5 million, SDLT is 10% of the portion above £925,001.

For the remaining amount, the portion above £1.5 million is taxed at 12%.

This is a temporary measure – the deadline to complete on a purchase is March 31st 2021. There is still time to benefit from this tax cut but buyers need to move quickly as it takes time to carry out valuations and conveyancing and there are currently high volumes of transactions taking place so there are some delays.

Stamp Duty surcharge for overseas buyers from April 2021

A new 2% SDLT surcharge for overseas investors not resident in the UK is being introduced from April 1st 2021 so this is another reason for buyers to complete their purchase before the end of March 2021. Transactions will be exempt if exchange of contracts took place before March 11th 2020 but does not complete until after April 2021.

The new tax means that overseas buyers will pay a 2% higher rate of Stamp Duty than the rate that applies to UK residents.

Check the amount of tax you will pay on your property purchase on our recently updated stamp duty calculator

Non-UK residents must register for Corporation Tax

Non-UK resident companies (including those investing in UK property through collective investment vehicles) must now pay Corporation Tax instead of Income Tax on profits from UK property.

Previously these companies paid Income Tax on rental income (at a flat rate of 20% of profits) using a SA700 return. From April 6th, 2020, these overseas companies have been required to register for and pay Corporation Tax instead but the good news is that the Corporation Tax payable is less – 19% of profits.

We can assist companies affected by completing the relevant tax return on their behalf. Further details and fees can be found here at our tax return service for overseas investors web page.

Changes to Capital Gains Tax (CGT)

Since April 6th 2020, any Capital Gains Tax due on the disposal of a residential property (a buy-to-let or other second property) must be calculated and paid to HMRC within 30 days of completion.

Letting relief of £40,000 against CGT – which was available where a property that was rented and also lived in by the owner at some point – is no longer available.

Also, previously there was a principal private residence relief – a reduction in taxable gain made during the final 18 months of ownership – this has been reduced to nine months.

Higher rate tax relief phased out

The phased introduction of the restriction of interest relief against residential property income is now complete and higher rate tax relief has been phased out.

From April 2020, landlords have had to calculate the tax on their profits before any interest deduction in full and claim back a basic rate tax credit which is currently 20% on the amount of interest charged.

This only affects individuals (and not companies) and only those whose income will be in one of the higher rate tax brackets.

Looking ahead to 2021

Of course, the Covid 19 pandemic has created a huge drain on public resources and the government has intervened in many different ways to support the economy and help address the consequences of the pandemic. Measures such as the Stamp Duty holiday have had a significant impact on the property market which has performed extremely well over the last few months. And with a vaccine now being rolling out, the outlook is more positive than it has been for some time.

But more tax changes may be necessary and as this is a fast-moving situation we will keep you updated with any changes as they are announced.

For a copy of our Tax Guide for Overseas Investors, please sign up here