The taxation of residential landlords has changed substantially over the last few year, with changes in April 2013 that many accountants missed, and proposed changes in the future, it can be hard to keep up.

The changes that have occurred, and that have been pre announced can be summarised as follows:

April 2013 – the withdrawal of the renewals basis for unfurnished properties.
April 2016 – Additional 3% SDLT Charge, withdrawal of the 10% wear & tear allowance and renewals basis for furnished properties, and introduction of a new replacement domestic items relief.
April 2017 – The start of the phased withdrawal of higher rate tax relief on finance costs.
July 2017 – Property disposals potentially charges to Tax/NIC rather than Capital Gains Tax.
April 2020 – Capital Gains Tax becomes payable within 30 days of making a property disposal.

Any landlord who has claimed tax relief on the cost of replacing white goods or a carpet in an unfurnished property between 6 April 2013 to 5 April 2016 has made an error on their tax return and is likely to suffer penalties and interest if HM Revenue and Customs raise an enquiry. Although the enquiry window has now closed HMRC could still raise a discovery assessment.

From 6 April 2016 relief became available again for this expenditure under the new replacement domestic items relief.
For any residential property acquisition occurring on or after 1 April 2016 an additional 3% SDLT charge applies where the acquirer owns 2 residential properties or more at midnight on the date of acquisition.

Companies are also subject to the additional charge, but from the first property. And your spouse’s properties count as your own even if you own no interest in them.

The Finance Cost Restriction, also known as section 24, is being phased in from 6 April 2017 onwards, many basic rate taxpayers believe this does not affect them but they could be wrong. The restriction will mean that you can no longer deduct the interest costs from taxable income and so could cause an existing basic rate taxpayer to have a higher rate liability. The finance costs will instead be relieved by a reduction in the tax liability calculated as a MAXIMUM of 20% of the finance costs with any unrelieved amounts being carried forward.

The FCR will apply to 25% of the finance costs during 2017-18, 50% during 2018-19, 75% from 2019-20 and from 6 April 2020 will apply in full. This means the first tax returns affected by these changes will be being prepared now, the first tax payment when this will bite is 31 January 2019.

In July 2017 a number of new clauses were added to the finance bill (without any kind of consultation) on how profits from trading and investing in UK land will be taxed. The problem arises from the wording of the legislation, profits from the disposal of UK land will be treated as trading profits and subjected to income tax and national insurance rather than capital gains tax if any one of four conditions are met, and as usual the wording is wide so it is hard to see how any landlord or potential landlord acquiring a property would not be caught by these changes.

Whether the profits from the disposal of a property are subject to capital gains tax as an investment, or income tax and national insurance as trading income has long been a common area of dispute between taxpayers and HMRC, these changes load the deck in HMRC’s favour. If you are thinking about disposing of property you should make sure the documentation is correct to ensure you don’t fall foul in this potentially expensive area.

For further information on how these changes impact you or your clients please get in touch today by calling 0116 318 3200 or by emailing general@catanda.co.uk. We offer fixed fees with unlimited support.