The new tax year is almost upon us.
And for landlords, that usually means a raft of legislative changes to absorb.
Here, we’ll be looking at all the changes landlords need to know about as we move into the 2020-21 tax year, as well as answering your questions on landlord tax in the UK.
Landlord tax changes: What’s changing in the new tax year?
It’s fair to say landlords have had a lot to contend with over the past five years when it comes to taxes.
And there’s more to come this year… Here’s everything you need to know:
Mortgage interest tax relief
The biggest change landlords have had to endure has been the introduction of ‘section 24’, legislation that has seen them unable to deduct portions of mortgage interest from their tax bill.
Since 2017, the legislation has been phased in 25% per year and from April 2020, no percentage of mortgage interest will be deductible from a landlord’s rental income.
Instead, landlords will have to claim a basic 20% relief in tax liability, meaning some could be forced into the higher rate tax band and those already in that band could face higher tax bills.
Capital gains tax relief
Another change coming in 2020 that landlords will have to get used to surrounds capital gains tax (CGT).
From April 6 2020, landlords who sell a rental property will have just 30 days to pay their CGT bill.
Currently, bills are paid as part of a landlord’s self-assessment tax return, meaning the full amount isn’t due until the following tax year.
But that is all changing from April.
Private residence relief changes
Changes to private residence relief (PRR) rules mean that landlords whose rental property used to be their main home will no longer be able to claim CGT relief on the final 18 months they owned the property.
This will reduce to nine months.
Meanwhile, currently landlords who qualify for PRR can claim up to £40,000 in lettings relief on their CGT bill if they once lived in the rental property they are selling.
From April 6, this relief is only available to landlords who live in the property alongside a tenant at the point of sale.
Stamp duty for landlords
Since 2016, landlords have been forced to pay an additional 3% in stamp duty on their rental properties – another move that has hit investors hard in the pocket alongside section 24.
However, with the Boris Johnson-led government’s first Budget due on March 11, rumours surrounding possible stamp duty reform have been gathering pace.
Initially, it was suggested that the government could introduce a further stamp duty surcharge on foreign investors.
But more recently, the news agenda has focused on suggestions that the stamp duty threshold could rise from £125,000 to £500,000 in a bid to kick-start the market.
Whether that kind of reform would apply to landlords remains to be seen, but this week’s Budget announcement is definitely one to watch.
Your landlord tax questions answered
When does the new tax year start?
The new 2020-21 tax year starts on April 6 2020.
Further deadlines landlords may need to be aware of throughout the 2020-21 tax year include:
July 31 2020: Second payment on account due for landlords paying tax through self-assessment
October 5 2020: Deadline to register for self-assessment if you’re new to paying tax in this way
October 31: Deadline for filing a paper tax return for the 2019-20 tax year
January 31 2021: Deadline for filing an online tax return, plus balancing payment for tax due from 2019-20 tax year due alongside first payment on account for 2020-21
What is the new tax code for this year?
The basic PAYE tax code for 2020-21 is the same as the previous year – 1250L. This gives taxpayers an annual tax-free allowance of £12,500 and is also known as the emergency tax code.
What changed for taxes in 2019?
In the 2019-20 tax year, which ends on April 5, the following changes occurred:
- The personal allowance rose from £11,850 to £12,500
- The amount people need to earn before having to pay higher rate tax at 40% increased from £46,350 to £50,000
- The state pension for those eligible from April 2016 increased by £4.25 per week
What is the tax allowance for 2020-2021?
The basic rate tax allowance for the 2020-21 tax year is £12,500.
When can I start my tax return for 2020?
Self assessment tax returns for the 2019-20 tax year are due by October 31 if you’re filing a paper return.
If you complete your tax return online, the return for the tax year 2019-20 is due by January 31.