April 2020 Property Tax Changes
This post is a reminder of the pending residential property tax changes, which will be in full force from 6th April 2020, so plan now to minimise any adverse tax impact.
Mortgage interest relief will be no more
The final stage of the phased removal of mortgage interest relief will come into effect.
Once upon a time landlords could claim the interest paid on their mortgages as a business expense to reduce their tax bill. The removal of this relief has been phased in since 6th April 2017 and from 6th April 2020 it will be completely removed. See Section 24 Landlords Unaware.
Just as an example:
- Prior to Section 24: If you are a higher-rate taxpayer earning £20,500 per year rental income and your mortgage interest costs £11,500 per year. Tax is due on the profit (£9,000), so you pay £3,600 to HMRC and keep £5,400 as profit.
- Post Section 24: 40% tax will be due on your full rental income (£20.500) which will be £8,200. From this you can claim a 20% tax relief on the mortgage interest (20% of £11,500) which is £2,300. This means you will need to pay £5,900 to HMRC and keep £2,300 as profit. This means your tax bill will have increased by a whopping 57.4%.
Paying capital gains tax sooner
There will also be changes to Capital Gains Tax (CGT) due on property from the 6th April 2020.
Taxpayers will be given 30 days from the date of sale to file their return and make an advance payment towards their tax bill.
Previously the rules allow people to report and settle the CGT on the disposal of a property as part of their annual self-assessment, which can be between 10 to 22 months after the sale.
Restrictions on lettings relief
Lettings relief is also set for reform, and it is proposed that from the 6th April 2020 it will be limited to people who rent out a room in their home with the idea of sharing with occupying tenant.
Lettings relief applies where an individual sells a property that has been their main home but also been let out at some point. The relief can exempt a gain of up to £40,000 on disposal and is valuable to those who have moved into a larger family home while renting out their original property.
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What are you thoughts on the pending and current property tax changes?