Tax Changes for Landlords
There have been some recent changes to the tax regime for landlords and with Making Tax Digital (MTD) also looming the changes have been summarised below.
Capital Gains Tax (CGT)
Aarrgghh yes the dreaded CGT! If you a new landlord or have never sold a property before you may wonder what CGT is.
CGT is the tax you pay on any profits when disposing of an asset, such a property, or receiving a gift or inheritance. Here we are just focussing on CGT for property that has been sold.
What property do I have to pay CGT on?
The most important point to take away here is that CGT does not apply to your family home, the home you live in. There is an exemption called Private Residence Relief (PRR) which exempts a property from CGT provided it has always been exclusively used as your main residence.
There are two very important terms in that definition: always and exclusively. If you have previously rented out the property and then moved back into it (or vice versa) restrictions to the relief apply based on how long you have lived in the property for.
Likewise if you use part of your home for business use (ie you have converted the garage to a salon, home office etc) again restrictions can apply. This can be a bit of a complex area so please contact us if you have any queries.
Any other property, an unfurnished rental property, a furnished holiday property, your holiday home that you didn’t rent out, will be subject to CGT.
What has changed?
Capital gains must now be reported and paid within 30 days of a property being sold!
The tax-free allowance has increased from £12,000 to £12,300
If you have previously lived in the property and then rented it out the number of months you are exempt from CGT has been reduced from the final 18 months to the final 9 months. Note that a 36 months exemption still applies for those who are disabled or in care.
Lettings relief is now only available to landlords who are in shared occupancy with a tenant.
Payment and reporting deadlines
For property sold before April 2020 you can report this on your self-assessment return for 2019-20 and any tax due will need to be paid by 31 January 2021.
For property sold after 6 April 2020 you will need to submit a CGT return and pay what you owe within 30 days of the sale completing. You will also need to include this information on your self-assessment.
If you are unsure whether you qualify for Private Residences Relief in full, have a capital gains calculation you are not sure what to do with or are looking to sell your property and need ensure that you report the information on time please contact us.