Residential landlords may notice a difference to their rental income tax calculations this year.
Back in 2015 new rules were introduced to restrict tax relief on loan interest and finance charges arising in respect of residential property lettings the rules are being phased in over a four year period and the first phase starts for the tax year just ended 2017/18.
What are the restrictions?
The aim is to restrict the tax relief given for loan interest and finance charges arising in connection with residential lettings to the basic rate of tax (currently 20%).
To lessen the overall impact and perhaps to allow residential landlords to rearrange their lettings finance models, the restrictions are being phased in over the next few years:-
For 2017/18 the restrictions apply to 25% of the costs;
For 2018/19 the restriction applies to 50%;
For 2019/20 the restriction applies to 75%, and
For 2020/21 all finance costs and loan interest relief will be restricted to the basic rate of tax.
Residential landlords who only pay tax at the basic rate should not be affected by the changes.
These changes bring another level of complexity and potential cost to residential landlords. By the year 2020/21 some landlords could see all rental income profits used up in tax charges and effectively they will be funding the Exchequer for owning rental property.
Paul Southward tax director at Keens shay Keens limited says “Residential Landlords need to understand how the new rules will impact on the lettings business models. This will help them understand what changes may be necessary to address this issue”. It is for this reason that Paul has prepared a detailed illustration of how the new rules will be applied from the last tax year ended on 5th April 2018 and going forward to 2020/21.
Paul has made his illustration available as handy download that can be accessed here:
If you are a residential landlord and want to know how you can maximize your tax savings contact Paul Southward.
Additional 3% SDLT charge
A reminder that the Additional 3% SDLT charge is now in place.
If you are planning the purchase of a UK residential property and you own another property at the time of the purchase, then you may need to consider whether or not you may be liable to the additional charge to Stamp Duty Land Tax (SDLT).
The additional 3% rate of SDLT for those purchasing ‘additional residential properties’ in England and Wales, such as second homes and buy-to-lets, is due to apply to completions from 1 April 2016, subject to some transitional relief (FB 2016 cl 117).
The increased SDLT rate will apply where, at the end of the day on which a property is acquired, the individual concerned owns two or more residential properties and is not replacing his or her main residence, which has been sold within the last 18 months.
Married couples and civil partners (unless they are separated in circumstances likely to be permanent) will be treated as a single unit for this purpose.
The 3% additional SDLT rate will also apply where an individual has sold their main residence and it takes them more than 36 months to complete the purchase of a new one, provided of course that the individual has more than one property at the end of the day the new property is acquired.
Where property is being purchased jointly, the additional 3% SDLT rate will apply to the entire value of the additional property if any of the joint owners already own a residential property.
In Scotland a supplementary transaction tax of 3% (now called the additional dwelling supplement (ADS)) will apply to second homes or buy-to-let properties.
The government have made a U-Turn with regard to the new tax being applied when a property is purchased with an annex, especially where the purchase is made to provide living accommodation for an elderly relative. More details can be found here:
Here is an overview of the new Trivial Benefits in Kind rules.
From 6 April 2016 a new exemption removes liability to income tax for low value Benefits in Kind (‘trivial BiKs’). This new exemption is being legislated as part of Finance Bill 2016 (FB16) and is subject to Parliamentary approval. The previous administrative practice where employers could agree with HMRC that certain BiKs could be treated as trivial and did not need to be returned to HMRC at the end of the tax year no longer applies.
Draft guidance on the new exemption has been published on GOV.UK. This guidance will be incorporated in HMRC’s Employment Income Manual later in the year after FB16 receives Royal Assent.
To qualify as a ‘trivial BiK’ conditions A-D must be met:
Condition A – the BiK must not be cash or a cash-voucher;
Condition B – the BiK must cost £50 or less;
Condition C – the BiK must not be provided as part of a salary sacrifice or other contractual arrangement; and
Condition D – the BiK must not be provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services.
There is no limit to the number of trivial BiKs that can be provided to an employee in a tax year where all conditions are met, unless Condition E applies (see below).
Condition E applies an annual £300 cap where a trivial BiK (that meets conditions A to D) is provided by an employer that is a close company to an employee who is a:
director or other office-holder of the close company, or
member of the family or household of a director or other office-holder of the close company.
If you have any queries regarding the new Trivial Benefits in Kind Rules or any other employment matter, do not hesitate to contact us.
The need for IHT Planning is highlighted by record tax receipts.
With the current revelations about offshore trusts, tax havens and the disclosures about our political leaders tax affairs you may think that tax planning is all but dead and gone. This is certainly not the case, some sensible steps based on sound, legitimate and lawful advice could knock thousands of pounds in inheritance tax (IHT) for you and your family.
The need for IHT planning is highlighted by the fact that IHT receipts leapt to a record £4.6bn in the year to February 2016 a rise of 21% on the previous year’s total of £3.8bn.
A part of that increase is probably down to increases in property values bringing many more estates within the charge to IHT. The situation has been exacerbated by the fact that the starting threshold for paying IHT has remained unchanged for almost 7 years.
So where do you start? Whilst we would recommend that you only take IHT Planning action after taking expert advice, there are things that can be done to ‘prepare the ground’ this will make it easier for your adviser to focus on the specific needs of you and your family and provide advice that is relevant to you and your family.
So here are some simple steps that will get you started:-
1. Make a list of all your assets and make an estimate of each asset’s current value. If you are married or in a civil partnership make a separate list for each party, split the value of jointly owned assets according to your share.
2. Consider future inheritances you may receive are you likely to be the beneficiary of a will or perhaps a trust? Do you own or have an interest in any capital assets that are likely to be sold within the next 5 to 10 years? Make a separate list.
3. Make a list of all your income sources and the yearly income received from each source. Also make a list of all your outgoings.
4. Think about significant future outgoings you may incur over the next 5 years or so, education costs, weddings etc. and make note of these.
5. Have you already made gifts to your family? You should keep a record of any significant gifts that you have made.
6. Think about your path in life over the next 5 to 10 years and consider where it may take you, and where you would want to be.
7. Now draw up your current family tree include all from whom you may benefit, current dependents and others who you wish to benefit from your estate.
Now you can give us a call and we can lead you on to the next leg of your journey by providing you with the sound, legitimate and lawful advice you need to plan for your and your family’s future. We may not save you any tax but the peace of mind you will achieve will bring rich rewards.
In his Budget speech today, the chancellor George Osborne announced: Lifetime ISA
This is a quick summary of how they will work.
Save up to £4,000 each year, and receive a government bonus of 25% – that’s a bonus of up to £1,000 a year. You can use some or all of the money to buy your first home, or keep it until you’re 60 – it’s up to you.
* open a Lifetime ISA account between the ages of 18 and 40, and any savings you put into it before your 50th birthday will receive an added 25% bonus from the government
* accounts will be available from April 2017
* there is no maximum monthly contribution – you can save as little or as much as you want each month, up to £4,000 a year
* the total amount you can save each year into all ISAs will also be increased from £15,240 to £20,000 from April 2017
use it to save for a first home
* your savings and the bonus can be used towards a deposit on a first home worth up to £450,000 across the country
* accounts are limited to one per person rather than one per home – so two first time buyers can both receive a bonus when buying together
* if you have a Help to Buy: ISA you can transfer those savings into the Lifetime ISA in 2017, or continue saving into both – but you will only be able to use the bonus from one to buy a house
use it to save for retirement
* after your 60th birthday you can take out all the savings tax-free
* you can withdraw the money at any time before you turn 60, but you will lose the government bonus (and any interest or growth on this). You will also have to pay a 5% charge
Good news on the horizon for landlords
The taxman is becoming quite adept at sleight of hand tricks, whereby tax rules and reliefs are mysteriously changed or removed overnight. On such relief was for landlords of unfurnished properties and the withdrawal of what was known as the ‘renewals’ relief. Under this practice landlords could claim relief for the renewal of items in their rental properties such as; fridges, carpets, curtains, beds etc. From 6 April 2013, the taxman made the renewals basis disappear, leaving landlords potentially out of pocket, when renewing items in their properties.
Landlords who let properties fully furnished were not able to claim the renewals relief but are entitled to an annual wear and tear (W&T) allowance based on 10% of the rental charges, and this was intended to cover the costs of renewals. The W&T allowance is still available and this has led to a somewhat uneven pitch for landlords.
The good news is that the taxman is aiming to level the playing field for landlords. HMRC have published a consultation document in which it discusses proposals to replace the W&T allowance with something that looks remarkably like renewals relief!
Under the proposals the initial cost of furnishings etc. will not be allowed as a deduction against rents (like it was under the renewals relief). The cost of renewing items provided for the tenant’s use in a rented property will be allowable as a deduction (as was the case under renewals relief).
It should be noted that fixtures integral to the property such as baths, fitted kitchen units and boilers are not included. However these costs would normally be allowable as a repair the property.
So as I see it, the result of the new proposals are to remove the W&T allowance for landlords of fully furnished properties and reinstate a sort of renewals relief for all landlords.
If the proposals go ahead the changes will come into effect from April 2016, so landlords may need to look closely at the timing of replacing items in their buy to let properties.
We advise clients on all aspects of their rental income business, it makes sense to talk to us.
Employers – avoid these common errors when completing forms P11D
If employer’s can avoid these common errors when completing forms P11D they can avoid delays, additional work and the increased chance of a tax compliance visit.
Submitting a duplicate P11D in addition to an electronic version;
Using a paper form for the wrong tax year;
Not ticking the ‘director’ box when applicable;
Not including a description or abbreviation for sections A (assets transferred), B (payments made on behalf of employee), L (assets placed at the employee’s disposal), M (other items) or N (expenses payments made to, or on behalf of, the employee);
Leaving the ‘cash equivalent’ box empty where you’ve entered a figure in the corresponding ‘cost to you’ box of a section;
Not advising HMRC that a “Nil” P11D is due;
Where a benefit has been provided for business and private use, report the full gross value rather than only the private-use amount
Not completing the fuel benefit box/field where applicable;
•Incorrectly completing the ‘from’ and ‘to’ dates in the ‘Dates car was available’ boxes. E.g. If a car was available in the previous tax year, then the “from” box should not be completed. Where the car is available after the end of the tax year then the “to” box should not be completed
If you need help or guidance with your PAYE benefits and expenses reporting, contact us.
Landlords and HMRC’s let property campaign
If you are a landlord and you are confident that your tax affairs are up to date and that all your rental income has been correctly declared, then all is well.
If you are a landlord and you think that you may not have made the correct disclosures to the taxman; then you may want to take action before the taxman comes knocking on your door!
Advances in technology coupled with the increase of powers available to the taxman have enabled him to access a whole heap of information regarding property transactions and property rentals across the UK. It may be a slow process but the taxman is now linking the information held, to property owners, and is making enquiries.
In the past, HMRC have successfully used campaigns to encourage voluntary disclosures from individuals for whom the taxman may have information about undisclosed tax liabilities.
One of the more recent disclosure campaigns is aimed at Landlords. The scheme covers more or less anyone who has received income from letting out a property, properties and even rooms in their main house (subject to certain exemptions).
So why volunteer a disclosure? Quite simply, to benefit from a more lenient settlement with HMRC than would be available if HMRC discover that you owe taxes and have not made a disclosure.
The taxman can charge penalties of up to 100% (200% for certain offshore liabilities) of the tax due for failing to notify a tax liability or for making an inaccurate return.
Under the let property campaign the taxman may agree to a much lower penalty, of say, 20% or less, and in some cases £nil.
At the moment there is no set time limit for someone to make a disclosure under the let property campaign, however, a delay in doing so could result in higher penalties.
You can of course make a disclosure directly to the taxman; however, we believe that we can offer you more. If you engage us to assist with your disclosure we will make sure that you claim all the appropriate deductions that you are entitled to, and ensure that you only pay the correct amount of tax; this will also help minimise any penalties charged. We explain and guide you through the whole process and deal with the taxman on your behalf to ensure that you get the best possible deal, and give you peace of mind that your tax affairs are brought fully up to date.
If you would like to discuss your particular circumstances in confidence, contact Paul Southward.