With multiple revisions to taxation in the property sector last week, landlords need to be aware of the current situation to avoid receiving a fine.
Last week, amid all the coronavirus coverage, certain changes to tax laws might have passed under the radar. For the last few years, the government has been promising changes to the current rules around capital gains tax in the UK, especially concerning income from property.
Capital gains is a tax on any profit made by selling an asset that has increased in value. Currently, the tax applies to gains made on any transactions over and above £12,300.
The first change relates to the grace period for making payments after any income has been received. Previously, the vendor had a 10 to 12-month grace period in which to make the tax payment. Now that has been brought right down. Vendors have just 1 month after the completion of the sale to pay an estimate of the value.
A further change applies to landlords who claim ‘Letting Relief’. Prior to last week, landlords selling a house they used to live in, after having rented it out, were entitled to £40,000 exempt from Capital Gains Tax, and that figure was cumulative, meaning that couples were entitled to £40k each. Now, the situation has been revised only to apply to landlords currently living in the property with their tenants.
The third change, and one that landlords are likely to notice the most, is a tax on rent. In previous years, landlords with a mortgage on their buy-to-let property were able to deduct the mortgage interest from rental income, before calculating their tax. The government has now decided to phase it out, replacing it with a 20% tax credit and calculation which means most landlords will end up paying a higher rate of income tax.
These changes are described as “significant and complex” by industry experts, however only the very observant will have noticed any news coverage because they have been overshadowed by the main story at the moment. This is a concern because landlords found to be contravening the regulations because they are unaware of the new rules will receive a fine.
However, it’s also an opportunity for letting and estate agents to provide their customers with a added value by explaining the rules and helping landlords achieve compliance.
Ian Bythell, director of Petty Real, commented:
“We’re going through some very challenging times at the moment and we are looking for ways to adapt our business model in the future. One of the ways we’re doing that is by concentrating on what we can do, not what we can’t do. What we can do, and do very well, is offer expert advice.”
Petty Real has been in business for nearly 100 years, and Mr. Bythell has over 30 years’ experience in the sector. There’s not much that he, and his organisation, don’t know about the property sector.