Taxation is an issue that vexes many landlords and there have been a number of changes recently with respect to taxation for landlords. These changes have made it difficult for landlords to be fully confident about what they have to pay, but this guide aims to explain landlord tax.
With four budgets in the space of the past year, there has been a lot of information to digest and many landlords feel as though they are bearing the brunt of the Chancellor’s activities.
On top of the change in stamp duty charges for investors and those in the buy to let market, and the changes in relief for interest payments on mortgages scheduled for April 2017, the March 2016 budget has further angered landlords and investors.
Chancellor George Osborne announced that there was to be a reduction in capital gains tax rate but this wouldn’t apply to property deemed to be investment property. This move will ensure that landlords are unable to benefit from the 20% rate available to higher tax payers and the 10% rate for lower tax payers.
These changes will be implemented from the beginning of the new tax year on April 6th but higher rate landlords will continue to pay 28% while lower rate landlords will continue to pay 18% on any gains made on selling a property.
While it could be argued that landlords are not any worse off due to this change, the fact that other people are receiving a benefit which is being denied to landlords and investors will invariably leave landlords angry, annoyed and victimised.
A landlord that receives a profit from renting out their property should be aware that this is taxable income, which means that income tax is due. The amount of tax that the landlord has to pay is subject to their overall level of income, so there is a requirement for every landlord to be aware of their own income. A landlord in the basic rate of tax level will be required to pay 20%, landlords in the higher rate will be required to pay 40% and if a landlord is in the additional rate bracket, they will be required to pay 45%.
The government provides a number of “income tax reliefs”, so it is worthwhile for landlords to determine if they are due any rebates or assistance with respect to income tax.
For the 2017/18 financial year the deduction available for property income, will be reduced to 75% of the costs of finance and the remaining 25% will be made available at the level of basic rate tax reduction.
For the 2018/19 financial year, this figure will change to 50% of the costs of finance and the remaining 50% will be provided as a basic tax reduction.
For the 2019/20 finance year, the balance will change to a 25% finance costs deduction with the remaining 75% being available as a basic rate tax deduction. From 2020/21 onwards, all of the finance costs incurred by a landlord will be classed at the basic rate.