Owning property and being a landlord has many benefits, but what of the taxes accompanying such a portfolio? Though taxes do require to be paid, there are some benefits that can be gleaned from recent budget tax breaks. These apply to all landlords. There are areas where residences as well as elite restaurants and shopping areas exist, and landlords are involved in both residential and business properties – for example, Belsize Park in northwest London. Belsize Park estate agents can offer their expertise on tax benefits to such landlords.
There are three main tax payments for landlords – when they buy property, the annual rental on the property, and then sell the property.
SDLT holiday: With the stamp duty land tax holiday being extended to the end of June 2021 and then phasing out until the end of September, this is a benefit for new landlords and professional buyers. Even though property investors on second homes or buy-to-let properties will have to pay a 3% stamp duty surcharge, the benefits with the SDLT holiday extension are enormous.
Capital Gains Tax: CGT is the tax payable when a property has increased in value and is sold at a higher price than the buying price. The difference is the amount on which CGT is levied. This tax has to be paid within 30 days of selling the property. Professional landlords who take advantage of increased house prices, such as properties in Belsize Park and then sell will have to pay the CGT. However, these tax rules differ if you are a landlord or a live-in homeowner. The former will pay CGT, and the latter usually will not have to pay any.
- An annual CGT personal allowance can be deducted from selling a rental property, reducing the tax payable.
- Some landlords set up limited companies to benefit from tax payments as profits made by selling property through a limited company come under corporation tax, much lower than the CGT.
- Some costs can be claimed against CGT. These include fees from estate agents and solicitors, stamp duty paid at the time of purchase as well as valuation and survey costs. Some improvement costs, such as adding an extension to the property, are also deductible.
- PRR (private residence relief): If a landlord is selling a property in which he/she has lived as the main primary residence before letting it out, relief can be claimed for that specific period.
Letting benefit: There was a tax relief for landlords renting properties, but this has since been withdrawn. Now it applies only to landlords who live in the property at the same time as the tenant(s). Letting agents in Belsize Park will be able to explain this in more detail.
Income tax: For landlords, all rents received and expenses paid are self-assessed. If allowable expenses exceed the rental income, then the loss for tax purposes can be offset against future profits on rentals. These losses cannot be stored up – they will need to be offset each year against any profits until they are exhausted.
Allowable property expenses for income tax: These vary depending on the property being let out – whether residential, commercial or a furnished holiday rental. Some include bad debts, which are mainly rental arrears, especially in the present pandemic situation. Others include professional fees, insurance cover, ground rent (rent for land only), repairs to the property, replacements, cleaning or gardening service fees. A self-employed landlord can claim simplified expenses such as travel in his/her own vehicle to view other properties (only if they are bought) or working from home. These simplified expenses cannot be claimed if a limited company is set up. Relief on interest payments has now been modified to a set 20% tax credit on such payments.
MTD – Making Tax Digital: With this MTD scheme coming into force soon, provision for adhering to the same will have to be made by landlords. The benefits are that the digital system will allow transparency to see how much tax is owed month by month instead of waiting till the end of the financial year. In addition, for professional landlords with multiple properties, it offers a safe and hassle-free way of maintaining records by adding the information “on the go,” which will not let taxable claims escape.
However, landlords earning less than GBP 10,000 as an annual rental will not need to set up a digital tax account. Also, landlords who have a Rent-a-Room scheme for lodgers will not come under the MTD system. Others who may be exempt are those who are unable to file digitally due to a disability, age or remote location.
Conclusion: Despite property taxes having to be paid promptly and regularly, there are some benefits that landlords can take advantage of. Keeping accurate records of payments and income is essential. Last but not least, the advice and guidance from a professional will allow maximum benefit to the landlord over the recent tax regulations