Landlords have been hit with Income Tax, capital Gains Tax and Stamp Duty Land Tax, but where will it stop with the first phase of Making Tax Digital coming in from 1st April 2018.
As all landlords will by now be aware, the Income Tax, Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT) changes brought in by George Osbourne are starting to be felt across the market.
From 6th April 2017, tax relief on interest paid on borrowings by individuals on their property portfolios will start to be restricted to the basic rate of income tax, which is 20%. In the past, full tax relief at up to 45% has been available. This restriction in tax relief is being introduced gradually over the next 4 tax years, and will be fully in force by the tax year beginning on 6th April 2020. Those who will be hit the hardest will be those who are highly geared, with little equity in their properties.
Those buying rental properties either themselves or through companies are likely to be hit with the additional 3% rate of SDLT, which came into force in April 2016.
Those selling residential properties that are not their main residence will be subject to CGT at rates of 18% or 28%, depending on the level of their other income. The CGT rates on the sale of most other assets are 10% or 20%.
Not content with hitting landlords hard with the above tax changes, HMRC is pressing ahead with quarterly tax reporting from next year under the Making Tax Digital (MTD) programme. All landlords with rental turnover above £10,000pa will need to report their income quarterly to HMRC using approved software or spreadsheets, At the time of writing, the fine details are still being finalised, but this will be another onerous task for landlords to comply with.
The operative date will be from 6th April 2018 for landlords with turnover above the VAT limit (£85,000), and 6th April 2019 if turnover is above £10,000 but below £85,000. Whilst income and expenses will have to be reported online on a quarterly basis, tax payment dates don’t change, nor does the requirement to submit an annual Tax Return, yet! Eventually, the Tax Return will disappear for most taxpayers, but there might be a lot of pain before we reach that point!
Written by Richard Grayson, Director at Nicholsons Chartered Accountants.