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Tax planning for residential property owners

Mark Stemp, Partner, Private Clients
06/03/2020
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There have been many residential property tax changes implemented by the government in the last few years. The current changes are targeted to second home owners as well as landlords.

The current issues facing our clients are:

Capital Gains Tax (CGT) changes from 6 April 2020

 Act now: tax planning opportunities

  ►  Year-end tax planning opportunities for individuals
  ►  Profits for business owners and their families
  ►  Tax planning for resident and non-domiciled individuals
  ►  Key tax considerations for Trustees
  ►  Radical changes to UK Inheritance Tax proposed
  ►  Concerns for the future of Entrepreneurs' Relief

Multiple residential property owners

For residential property disposals exchanging in 2019/20, both the reporting on a tax return and the CGT tax payment is typically due on 31 January 2021. 

Changes are planned for disposals in 2020/21 where there will be a reporting obligation as well as a tax payment due within 30 days. 

Care needs to be taken as the ordering of disposals during the tax year are now important. Losses made during the same tax year as gains need to be managed to help ensure they can reduce gains, all of which needs to be reported and paid in the 30 days.  

Landlords

Landlords who have let their property out as well as using it as a main residence could find that they are impacted by two new rules being implemented in April 2020:

  • Lettings relief has been removed, which can increase tax by up to £11,200 a person
  • The Main Residence Relief final period has been reduced from 18 months to 9 months.

It is important to take advice to understand how these changes will affect you. Some clients are deliberately accelerating sales prior to the changes on 6 April, whereas others are making gifts to family members or trusts to lock in current reliefs. 

Loan interest relief – Income Tax restrictions on dwelling related loans

From 6 April 2020 the loan relief restriction will be fully implemented. Since 2017 there has been an increase in the restriction for relief where landlords make interest payments to the bank.

For 2019/20 there was a transition period, however from 6 April 2020 the full restriction will apply. This means higher rate or additional rate taxpayers who pay mortgage interest to the bank and claim relief against their income tax will yet again see their tax relief further restricted. In simple terms, relief will be given at 20% whereas in the past relief would have been at their tax rate, typically 40% or 45%.

These rules can particularly impact owner managers whose income is paid in the form of dividends from their company, as tax relief is not available against taxes paid on investment income. 

The phasing of the restriction has meant many landlords have not been hit by the full relief restriction, which won’t be calculated and reported to HMRC until 31 January 2022. 

Clients are however taking action and considering the following:

  • ownership of the property
  • setting up Trusts
  • setting up companies.

Do you have two residential properties you live in?

The CGT main residence rules still allow the taxpayer to choose which property is to be treated as a main residence and therefore tax free on disposal. 

There is however a short window, typically of two years, whereby this election needs to be made. If you have recently acquired a second home or have changed homes, do take advice on how an election could benefit you.

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.

To better understand your tax position and what options are available to you please contact your local Crowe contact.

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