Navigating the Maze of New Tax for Landlords The recent buy-to-let tax changes have left many landlords scratching their heads. The rules have become more intricate, from mortgage interest relief reductions, lowering annual capital gains tax exemptions, and introducing a 3% Stamp Duty Land Tax surcharge. Key Dates and Forms: Staying Compliant It’s crucial to be aware of key dates and forms. For instance, the Self-Assessment tax return (SA100) is due by 31st January following the end of the tax year. If you’re a non-resident landlord, consider the Non-Resident Landlord Scheme (NRLS) and potentially file NRLY or NRL6 forms. Our experts can guide you through these requirements, ensuring you meet all deadlines and avoid penalties. Understanding the mortgage interest relief changes on buy to let proeprties One significant change is the phasing out of mortgage interest relief. Previously, landlords could deduct mortgage interest from their rental income from a buy to let residential property before calculating tax. However, this relief is being replaced by a 20% tax credit, impacting profitability for higher-rate taxpayers. Our experts can help you strategize the best way to manage this shift. Examples to Illustrate the Impact Consider a landlord who’s a higher-rate taxpayer. Their tax bill will significantly increase with the removal of mortgage interest relief. For example, a rental income of £20,000 with mortgage interest of £8,000 previously resulted in a taxable income of £12,000. Under the new system, the full £20,000 is taxable, with a credit for the interest paid, leading to a higher effective tax rate. Stamp Duty (SDLT) Stamp Duty is charged when buying a residential property as follows: 0% is charged on a residential property up to £250,000. Stamp duty at 5% is charged on the value from £500,000 and £925,000. A larger Stamp Duty is charged at 10% from £925,001 to £1,500,000. Any residential property purchased in the UK above £1,500,001 is set at 12%. When purchasing additional properties, such as buy-to-lets or second homes in the UK, landlords must contend with an extra 3% SDLT surcharge. This surcharge applies to each band of SDLT. For example, if a property costs £300,000, the standard SDLT would be £5,000. However, with the additional 3% surcharge, the SDLT rises to £14,000. Capital Gains (CGT) CGT is another critical area affected by tax changes for landlords. When you sell a property that’s not your main home, CGT comes into play. The rates for CGT are 18% for basic rate taxpayers and 28% for higher or additional rate taxpayers on residential property gains. However, it’s important to note how much CGT you pay can be influenced by factors like your income level and any allowable expenses or reliefs, such as Private Residence Relief. Property investors still benefit from the Capital Gains Annual Exemption of £6,000 from April 6th 2023, to April 5th 2024, when the allowance drops to £3,000 per person. Couples that sell assets will benefit from two CGT annual exemptions. Submit How do the recent changes for property investors affect mortgage interest relief? The amendment mean that instead of deducting mortgage interest from your rental income, you'll receive a 20% tax credit. This can result in a higher bill for higher-rate taxpayers. What are the implications of the changes for property investors on wear and tear allowances? You can no longer claim a flat 10% for wear and tear. You must now only claim for actual expenses incurred, which requires detailed record-keeping. Are there specific forms I must be aware of due to the landlord tax? Yes, the most common is the Self-Assessment tax return (SA100). You might also need to deal with NRLY or NRL6 forms if you're a non-resident.
Navigating the Maze of New Tax for Landlords The recent buy-to-let tax changes have left many landlords scratching their heads. The rules have become more intricate, from mortgage interest relief reductions, lowering annual capital gains tax exemptions, and introducing a 3% Stamp Duty Land Tax surcharge. Key Dates and Forms: Staying Compliant It’s crucial to be aware of key dates and forms. For instance, the Self-Assessment tax return (SA100) is due by 31st January following the end of the tax year. If you’re a non-resident landlord, consider the Non-Resident Landlord Scheme (NRLS) and potentially file NRLY or NRL6 forms. Our experts can guide you through these requirements, ensuring you meet all deadlines and avoid penalties. Understanding the mortgage interest relief changes on buy to let proeprties One significant change is the phasing out of mortgage interest relief. Previously, landlords could deduct mortgage interest from their rental income from a buy to let residential property before calculating tax. However, this relief is being replaced by a 20% tax credit, impacting profitability for higher-rate taxpayers. Our experts can help you strategize the best way to manage this shift. Examples to Illustrate the Impact Consider a landlord who’s a higher-rate taxpayer. Their tax bill will significantly increase with the removal of mortgage interest relief. For example, a rental income of £20,000 with mortgage interest of £8,000 previously resulted in a taxable income of £12,000. Under the new system, the full £20,000 is taxable, with a credit for the interest paid, leading to a higher effective tax rate. Stamp Duty (SDLT) Stamp Duty is charged when buying a residential property as follows: 0% is charged on a residential property up to £250,000. Stamp duty at 5% is charged on the value from £500,000 and £925,000. A larger Stamp Duty is charged at 10% from £925,001 to £1,500,000. Any residential property purchased in the UK above £1,500,001 is set at 12%. When purchasing additional properties, such as buy-to-lets or second homes in the UK, landlords must contend with an extra 3% SDLT surcharge. This surcharge applies to each band of SDLT. For example, if a property costs £300,000, the standard SDLT would be £5,000. However, with the additional 3% surcharge, the SDLT rises to £14,000. Capital Gains (CGT) CGT is another critical area affected by tax changes for landlords. When you sell a property that’s not your main home, CGT comes into play. The rates for CGT are 18% for basic rate taxpayers and 28% for higher or additional rate taxpayers on residential property gains. However, it’s important to note how much CGT you pay can be influenced by factors like your income level and any allowable expenses or reliefs, such as Private Residence Relief. Property investors still benefit from the Capital Gains Annual Exemption of £6,000 from April 6th 2023, to April 5th 2024, when the allowance drops to £3,000 per person. Couples that sell assets will benefit from two CGT annual exemptions. Submit
