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Tax planning for residential property owners

Mark Stemp, Partner, Private Clients
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There have been many residential property tax changes implemented by the government in the last few years, with the main change being the restriction on loan interest relief which is increasing income tax for landlords.  There are also proposed changes impacting taxpayers' Capital Gains Tax (CGT) positions.

 Act now: tax planning opportunities

  ►  Changes to Entrepreneurs' Relief
  ►  Key tax considerations for Trustees
  ►  Year-end tax planning opportunities for individuals
  ►  Profits for business owners and their families
  ►  MTD for VAT deadlines: business owners and landlords
  ►  Tax facts: Resident and non-domiciled individuals

Income Tax – Loan interest restriction

The most significant change of the last few years has been the withdrawal of higher rate income tax relief for loan interest on debts related to dwelling houses. We are now coming to the end of the second year of the phased introduction of the withdrawal of higher rate tax relief.

The change was first introduced from April 2017 and will be fully implemented by April 2020. The percentage of these costs providing marginal tax relief is restricted on a scale depending on the tax year.

Tax Year Interest Costs Allowing Marginal Tax Relief (old rules)  Interest Costs Receiving Basic Tax Relief (new rules) 
 2017-18  75%  25%
 2018-19  50%  50%
 2019-20  25%  75%
 2020-21  0%  100%

If you haven’t already, property owners should model the new rules to assess the impact on rental yield, and where necessary take action.

Action could include:

  • changing the structure of the ownership of the property
  • refinancing – it is more important than ever to get the best rate possible on all borrowings
  • when buying a buy-to-let property, take advice on how best to structure the acquisition and its ownership
  • running the property portfolio through a company.

Other ideas to be considered before the end of the tax year are:

  • re-balancing property ownership between spouses to make the most of income tax bands and allowances
  • transferring a share of property standing at a gain to a connected person (or company) to make use of any outstanding CGT annual exemption (up to £11,700 per person in 2018-19)
  • transferring property or a share of property into Trust (where gains exceed the annual exemption) to reduce exposure to inheritance tax on death without triggering CGT charges. Care needs to be taken to ensure the transfer does not trigger a lifetime inheritance tax charge.
  • Where you have more than one home, consider the merit of making a main residence election to improve the CGT position.

Tax changes on the horizon

Changes proposed by the government include:

  • the restriction of the final 18 months deemed occupation period under the Private Residence Relief legislation, being reduced to nine months from April 2020
  • the removal of Lettings Relief being available to taxpayers from April 2020, except where they have co-inhabited the property during the period it has been let. This means taxpayers could have an additional chargeable gain on sale of up to £40,000.
  • the extension of CGT reporting requirements, to now include the disposal of UK commercial property by non-UK residents from April 2019
  • the introduction of a 30 day post completion CGT payment date for UK resident taxpayers where there is a sale of UK residential property. It is proposed this rule is to be introduced from April 2020.

How can we help?

With property matters, it is always important to take tax advice due to the impact property has on all areas of taxation. There are opportunities for planning which can be taken advantage of every tax year.

For more information please contact your local Crowe contact or read our Guide to the tax implications of investing in residential property.

Contact us 

Our national private clients team provides specialist tax advice to some of the most successful individuals and families in the UK. We understand that absolute discretion is essential and take pride in building long-term relationships with our clients. Get in touch with us today.
Mark Stemp
Mark Stemp
Partner, Private Clients
London & Thames Valley