A Guide To Recent Tax Changes For Landlords
Written for Expat Network by GoSimpleTax
HMO licensing is changing
Looking to convert or buy property for the purposes of creating an HMO? Some of the bigger changes at the start of this decade will impact you. Under previous rules, landlords could easily convert a family home into a small HMO with up to six occupants. Seven or more would typically require planning permission.
Now, local authorities have more control over developments in their community. If your local authority places the surrounding area of your property under an article 4 direction, for example, you’ll need planning permission to get your HMO licence – provided there’s a material change of use – regardless of the number of occupants.
Many local authorities have already implemented city-wide article 4 directions. Plus, mandatory licensing now applies to all HMOs with five or more tenants who share facilities, irrespective of the number of stories within a building.
This is the final year of mortgage relief
In April 2017, landlords were told that tax relief for mortgage costs would be phased out over a period of four years. Each year, the relief was reduced by 25%, with only a basic-rate tax credit being offered in 2021.
As a result, this is the last tax year that landlords can deduct the interest paid on their mortgage from their income (the deduction of this year being 25%).
However, landlords are this year entitled to a 20% tax credit for all their property finance costs to mitigate the loss. The aim of this move is to increase the amount of tax paid by higher or additional-rate landlords.
Your Personal Allowance has increased
In 2019, it was announced that the Personal Allowance would be increasing from £11,850 to £12,500. This was welcome news for landlords as your Personal Allowance concerns the amount of your income that remains untaxed.
Thanks to the increase, the tax brackets in the UK will also be pushed back. Specifically, the basic rate limit will be increased to £37,500 and the higher rate threshold will be set at £50,000.
This will likely help a number of landlords retain profit – particularly those who have additional earnings outside of property or those who own multiple properties.
Your Capital Gains Tax allowance may increase
When you sell a property, you pay Capital Gains Tax. The allowance against this tax was £11,700, which meant you could profit that much out of the sale before being taxed.
However, in April 2020, we are expecting to see Capital Gains Tax allowance increase to £12,300. Anything above the allowance, though, will be taxed at 18% for basic-rate taxpayers and 28% for additional-rate taxpayers.
There is additional relief you can benefit from when selling a property, provided you’ve lived in it. This is currently known as Private Residence Relief and can significantly reduce Capital Gains Tax should you qualify.
For landlords hoping to potentially reduce their tax liability while adhering entirely to tax legislation, GoSimpleTax is the solution for you. Their service factors in all of the latest updates and reduces your dependency on accountants. If you’d be interested in maximising your income as a landlord and simplifying your financial responsibilities, take their free trial today – no credit card required.