Changes to Property Taxation – 2017 to 2020
2017 Income Tax – Restriction of finance costs for individual landlords
In his 2015 post-election summer Budget, George Osborne informed residential landlords that from April 2017 their ability to claim higher rate tax relief for finance costs was to be withdrawn over a four year period, as follows:
- April 2017 the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% available as a basic rate tax reduction.
- April 2018 the deduction from property income will be restricted to 50% of finance costs, with the other 50% available as a basic rate tax reduction.
- April 2019 the deduction from property income will be restricted to 25% of finance costs, with the other 75% available as a basic rate tax reduction.
- April 2020 all financing costs incurred by a landlord will be given as a basic rate tax reduction.
From April 2020 residential property (not holiday lets) landlords will only receive basic rate tax relief on finance costs.
2019 Extension to Non-resident Capital Gains Tax
Since the start of the current tax year (6 April 2019) non-resident landlords have been required to complete a separate online non-resident Capital Gains Tax return for each property disposal. Including, a computation of gains and losses.
Note: Different rules apply for those who are temporarily non-resident and make disposals during a tax year when you were either not resident in the UK or overseas as part of a split year.
In addition, corporation tax rather than CGT is now chargeable on chargeable gains linked to UK property or land for all non-resident companies.
Non-Resident Capital Gains Tax (NRCGT) is also potentially payable by all non-resident landlords, as the ATED-related gains charge was abolished from 6 April 2019. It now applies to gains arising from the disposal of any type of UK land or property which accrue from 5 April 2015 (residential property) or 5 April 2019 (non-residential property).
2020 Further Capital Gains Tax Restrictions – Coming soon (April 2020)
As part of his 2018 Budget the then Chancellor Philip Hammond announced the intention to restrict the Private Residence Relief (PRR) rules from 6 April 2020 by cutting the last period of ownership from 18 month to just nine months.
Note: As with the 2014 change, the 36-month exemption period is to be retained for owners with a disability or who are in residential care.
As if that wasn’t enough, he also announced that lettings relief (see below) is to be restricted to owners who share occupancy with a tenant.
Lettings relief was introduced in 1980, to allow people to let out spare rooms within their property on a casual basis without losing the benefit of PRR. HMRC says that it has found that lettings relief is being used for purposes beyond the original policy intention, benefitting those who let out a whole dwelling that has, at some stage, been their main residence.
Current lettings relief rules:
Where the property has been let at any time, each owner can claim lettings relief to reduce the taxable capital gain.
- This relief can cover gains of up to £40,000 per owner.
- It is only available if the property has been the owner’s main home for a period.
- It is also capped at the amount of PPR relief due for the period of actual occupation by the owner.
At the same time, Hammond proposed that CGT would be payable “on account” within 30 days of completion for all UK residential properties. Originally intended to be effective from 6 April 2019, to coincide with the new NRCGT rules, implementation of the proposal was delayed until 6 April 2020.
If there’s no gain to report or the gain is covered by exemptions or losses, taxpayers won’t have to complete a property disposal return.
After the end of the tax year, a taxpayer will complete a self-assessment return to disclose the property gain. The ‘on account’ payment will be deducted from the end of CGT liability; this could result in a repayment of CGT for the taxpayer.