For landlords of residential property, COVID-19 has the potential to disrupt your property rental business. The disruptions could be unpaid rent, problems with cashflow and difficulty in meeting expenses.
We have highlighted the key points to consider to help you during this period of uncertainty.
Landlords typically have an income tax payment due on 31 July 2020. This is the second payment on account for the tax year 2019/20. The government has announced that the payment can be deferred until 31 January 2021. This is an automatic offer and no application is required. By using this deferral, the money set aside for this payment can be used to help with cashflow within your rental business.
In addition, if your profits for 2019/20 are lower than 2018/19, you may wish to review whether or not the payments on account can be reduced, and if so, you may be eligible for a refund of part of the 31 January payment on account already made. The sooner you prepare your 2019/20 tax return, the sooner you will know if this is the case.
For individuals whose gross rent received during the tax year is less than £150,000, your rental income and expenses will be reported by the cash basis by default. The cash basis means that income is reported on the date it is received and expenses are reported on the date they are incurred.
It is anticipated that COVID-19 will impact profits of landlords for 2020/21 as most will have a year end of 5 April. If your tenant doesn’t pay rent, your taxable rental income will be lower during this period, and therefore your taxable profits will reduce, reducing the amount of tax payable.
Some landlords may have opted to prepare their profits on an accruals basis, and if so, the rental income not received is still taxable in most cases. They may therefore want to take advice to change to the cash basis.
The government has announced that buy-to-let landlords could request a mortgage payment holiday of three months if their tenant is struggling to pay their rent due to COVID-19. Landlords will need to be up-to-date with their mortgage payments to qualify.
To apply for the mortgage payment holiday you will need to contact your lender directly to confirm their respective position, with many lenders now offering self-certifications forms.
If you are reporting rental income and expenses on a cash basis, any such payment holiday will reduce the expenses claimed against your rental income compared to the previous year. Bear in mind that the costs of mortgage interest are no longer tax deductible from income but are now subject to the loan interest restriction whereby relief for the cost, up to 20%, is available against rental profits
Recently the government announced a number of legal reforms due to COVID-19 to assist renters which will impact landlords. We recommend regularly checking relevant association websites such as National Landlords Association (NLA) for any legal support and information for landlords during the current period.
Owners of furnished holiday lets have a complicated tax status. The impact of COVID-19 could mean that many owners will not achieve the qualifying day counts this year and so have to rely upon the period of grace election. We do not know yet whether there will be a relaxation of these rules to remain the special tax status.
Some landlords hold property within a company structure. If this is the case, the government has offered general support to companies such as with the Coronavirus Job Retention Scheme. Further information on government support can be found on our COVID-19 hub.
For many landlords their property business is their livelihood yet in the rafts of support for businesses generally there is little support for them. However, there are many areas a residential landlord should be considering during this period of uncertainty. Cashflow planning will be key to maintaining the business. As we move forward through this period support and guidance for landlords will become clearer, as the situation changes daily.;
If you would like discuss your individual circumstances in further detail please contact your usual Crowe contact.
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