Buy-to-let tax changes capital gains tax

UK tax for landlords: new guidance released on how the system works

For property investors and landlords investing in UK property, it’s vital to keep up to date with changing rules. While the tax landscape can be challenging, the new guide provides vital insight for the buy-to-let industry.

Anyone buying a property in the UK must be prepared for the potential tax costs involved, but this is particularly pertinent for property investors and landlords. Both overseas and domestic property investors must take their tax position into account for any purchase.

Over the past few years, a number of things have changed on this front for property. Stamp duty in particular has seen a number of adjustments to its current level, and is constantly under review. From next year, the government currently plans to add a 2% surcharge for all property purchases made by overseas buyers.

Another important side of the tax system, which affects buy-to-let owners, is income tax relief. Landlords can no longer claim 100% of their finance costs from rental income to calculate their taxable rental profit. While this may not have a drastic affect for many property owners, it is something all landlords must consider.

Guidance for clarity

To create a clearer picture for buy-to-let owners, mortgage lender Kent Reliance for Intermediaries has teamed up with advisory, assurance, tax and transaction services provider Ernst & Young to create a comprehensive guide.

The publication, “Changes to UK tax relief on finance costs”, covers past and current rules. It also looks at everything landlords need to know before buying or selling an investment property. This includes capital gains tax (CGT) as well as stamp duty and inheritance tax.

Whether an investor owns property as an individual or as a limited company can also make a difference. The guide further examines the implications of transferring a property into a company structure.

Kent Reliance for Intermediaries is part of OneSavings Bank. As Adrian Moloney of OneSavings Bank points out that while COVID-19 may have affected purchase and remortgage activity, but “professional landlords are not standing idle”.

“Many are taking advantage of the current situation to re-evaluate their investments, in order to maximise opportunities when normality returns,” he says.

“The latest edition of our ‘Changes to UK Tax Relief on Finance Costs’ for buy-to-let owners informs our broker partners of the key considerations facing their clients regarding the tax changes.”

What about non-resident landlords?

The UK property market has long since been one of the most popular investment choices for overseas buyers. Particularly in recent times, buyers view the UK market as a safe haven for their assets.

As such, the guide looks at how non-resident landlords can navigate the UK tax landscape. Despite not being resident in the UK, property owners who live overseas still have reporting requirements. These can vary depending on whether owner runs the property as an individual or a company.

The rules in some areas have changed in recent years for owners living overseas. For example, since April 2019, all non-UK resident companies selling UK property must pay 19% corporation tax.

In terms of the recent Section 24 changes, this applies to non-resident owners, too. “Generally, where a letting agent acts for a non-resident landlord, they are mandated to withhold basic rate tax from rental income, which will be paid to HMRC (the non-resident landlord, or ‘NRL’, scheme). The letting agent isn’t able to account for tax-deductible expenses that may be incurred as a landlord, and as such, paying tax in this manner can result in additional tax being paid.”

The full guide can be found here. Landlords and brokers can consult this for information, but the firms recommend always seeking professional advice, too.

At BuyAssociation, our team of experienced consultants can help you find the best UK property investment for you. We can also put you in touch with our tax partners who can offer you independent advice. To find out more, get in touch or sign up for free.

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