The 2019/20 tax year started on the 6th April and contains a number of changes which buy-to-let landlords should be aware of for the year ahead.
1. Buy-to-let income tax
One big change that we have seen this new tax year is the Government fulfilling its commitment to raising the personal allowance from £11,850 to £12,500 per year.
The personal allowance is the amount of income you can receive before you start paying income tax.
The government has also increased the higher-rate threshold for income tax from £46,350 to £50,000 at which point you will pay 40% on your income.
The additional rate (45%) remains unchanged and only applies to income over £150,000.
2. Private Residence Relief (April 2020)
In the 2018 Autumn Budget, Philip Hammond announced that there would be changes to Private Residence Relief from April 2020.
At present, if you are a landlord who lives in a property as your main residence before letting it to tenants, you will receive Private Residence Relief when you come to sell covering not only the period when it was actually your main residence, but also the last 18 months of ownership of the property, even if you were not living there during that period.
From 6 April 2020, the period at the end of ownership for which relief is given will be halved to just 9 months.
3. Lettings Relief
In additional to claiming principal private residence relief, landlords can claim an additional exemption of up to £40,000 of capital gain in lettings relief if they rent out a property which has been their main home at some time during their ownership of it.
From 6 April 2020, this relief is being restricted and will only apply to landlords who share an occupancy with their tenants rather than moving out and letting the entire property.
4. Tax relief on mortgage payments
2 years ago, during the 2017/18 tax year, the tax relief landlords could claim for interest payments was reduced to 75% of the total amount paid as the government decided in 2015 that it would start phasing it out.
In this current financial year (2019/20), tax relief on mortgage payments has fallen to 25% of the amount of interest paid, and it will be gone completely by the 2020/21 financial year.
To combat the loss of tax relief, an increasing number of landlords have been setting up limited businesses when investing in new rental properties as they will be subject to Corporation Tax (19%) rather than the regular tax bands (20%, 40% and 45%).
However this needs to be thought about very carefully as the entire range of taxes that will be incurred over the period of ownership needs to be considered and there will be circumstances where it is better to continue to own the property individually rather than in a company.
5. Capital Gains Tax for buy-to-let
To conclude, the government has increased the Capital Gains Tax allowance for the 2019/20 tax year from £11,700 to £12,000.
If you do sell a buy to let property, the Capital Gains Tax rate payable is higher for residential landlords and is set at:
• 18% for basic-rate tax payers
• 28% for higher and additional-rate taxpayers
The tax rates for gains on other assets, including commercial property, are 10% for basic rate taxpayers and 20% for higher rate taxpayers.
If you require advice and assistance tax planning for the year ahead, contact your
local Moore office today, where our tax managers will be happy to help.