The Biggest Changes in Property Taxes in 2020-21
While tax changes are probably the last thing on your mind right now, there may be a few things you’ve missed in property tax changes this year. If you are a landlord, you may already be aware of some of the changes this year. But for those who need a refresh in time for the end of the year, here are the biggest changes to happen to property tax in 2020-21.
This article contains:
- Mortgage interest relief comes to an end
- Exemption period for private residence relief is reduced
- Capital Gains Tax has a brand new deadline
- Restrictions on lettings relief
- COVID-19 relief
Mortgage interest relief comes to an end
For the past few years, landlords have been able to claim tax relief on finance costs such as mortgage interest. This relief, however, has now come to an end. In the 2020-21 tax year, you can no longer deduct finance costs from your rental income.
Instead, you will get a basic-rate tax reduction which works as a 20% tax credit of the amount of interest and finance costs incurred.
With such a big change, this has left many buy-to-let landlords considering opening a limited company for their rental properties to become more tax efficient. If you have been considering the same, the best thing you can do is speak with an accountant to get some much-needed advice.
Exemption period for private residence relief is reduced
One way landlords prior to 2020-21 reduced the amount of Capital Gains Tax (CGT) they paid was to make use of private residence relief. This originally meant that you could get full relief for any years you spent living in the property, plus a ‘final period’ at the end of the time you owned it.
This final period was previously 18 months. However, in April, it was reduced to nine months instead. This means that you may end up having more CGT to pay when you sell your property.
Capital Gains Tax has a brand new deadline
Another big change that came to property tax this year was the deadline for reporting Capital Gains Tax. Previously, Capital Gains Tax was something you could report and pay for through Self Assessment in January.
However, since April, CGT must be reported and paid within 30 days of completing a property sale. If you miss this deadline, there will be late filing penalties so you will need to act fast after selling a property.
Restrictions on Lettings Relief
The previous rules around Lettings Relief meant that landlords could get CGT relief if they sold a property which had been the main residence at some point.
However, from April 2020, Lettings Relief no longer applies unless you lived in the home at the same times as your tenants. For example, if you rented out a flat or a room.
If this is the case, Lettings Relief is also capped at £40,000, the amount you received in private residence relief or the same amount as the chargeable gain you made when letting out part of your home.
Landlords have also benefited from some COVID-19 relief measures such as a delay on the second payment on account for Self Assessment. Rather than being due on 31st July, this can be deferred until 31st January for those struggling to pay.
Some landlords who run a rental limited company and pay themselves a salary have been eligible for support under the Coronavirus Job Retention Scheme (CJRS). However, those without a limited company are not eligible for that or the Self Employed Income Support Scheme (SEISS). This is because rental income is considered investment income rather than trading.
If you are wondering how to navigate the tax changes in time for the new tax year or the Self Assessment deadline, getting in touch with an accountant is your best bet. Countplus is offering 100% free consultations for those who need advice at this time, get in touch to learn more or book an appointment by calling 01925 670289.
For married couples and civil partners, the only permissible allocations are 50:50 (the default position) and, on the making of a Form 17 election, in accordance with actual ownership where the property is owned in unequal shares.