From April 2020, new capital gains tax rules take effect
Some landlords may be affected by the new Capital Gains Tax (CGT) which is coming into force in April 2020. CGT may be due if a landlord has made any profits, through the sale of a property, that is not a principal residence.
Some of the changes, being introduced are:
The time you have to pay your capital gains tax bill.
The amount of tax relief you can claim if, you previously lived in the property.
New rules – Shorter payment deadline
From April 2020, landlords will need to pay the full CGT amount owed, within 30 days, from the completion of the sale. Landlords will need to consider, the new time frame when selling a property. Failure to pay the CGT in the 30-day limit will lead to a penalty.
PRR relief changes
(PRR) Private residence relief, means landlords selling their principal home, do not have to pay CGT on profits. This may apply to landlords (time limits apply)who used to live in the property, as their principal residence, but now wish to sell.
From April 2020, the period has been reduced to nine months. If you have not lived in a property, that was once your principal residence for more than nine months; you may have to pay CGT on any profit made when you sell the property.
Deductions you can claim against CGT
Under the new rules, you may be able to claim some costs, that can be deducted, from your CGT. These are:
- Stamp duty paid on the purchase of property
- Estate agent fees
- Solicitor fees associated with the sale of the property
- Improvement costs (such as extensions)
- Qualifying buying and selling costs
For properties which are owned by a limited company, corporation tax is applied instead. Corporation tax is currently 19% and is expected to reduce to 17%, in April 2020. Landlords should seek advice on using a limited company, as an investment vehicle, if you are not already using this.
Is Buy to Let still a good investment?
The news tax changes being phased in means that landlords can no longer deduct the cost of interest on mortgages from thein order to reduce their tax bill. From 2020 you will still get a tax credit for 20% of your mortgage interest payments.
Landlords who want to sell their property should consider the implications; when you sell a property, you may be subject to capital gains tax. In the current tax year, capital gains tax is triggered, after the first £12,000 of profits. For couples who jointly own the property, it is £24,000. Above this threshold, basic-rate taxpayers will pay 18% on their property gains, while higher and additional rate taxpayers have to pay 28%.
What happens if a lender detects, I am living in a BLT property?
A buy-to-let mortgage intended for you to live in the property is mortgage fraud. It is likely, terms and conditions of the mortgage, have been breached.
Can I rent a buy to let property to a family member?
Check your mortgage terms & conditions; generally, you should not have a problem, letting to a family member. Family buy-to-let investments can be a good move for some people. However, there are tax and mortgage complications, you will need to consider. You should seek advice from an accountant and a mortgage advisor too.
Can I buy my parents house for less than market value?
Yes, you can. However, if you are buying it below market value there may be tax and other implications both for you and your parents. Seek advice from an accountant regarding the implications of buying a property below market value.
Author: Marc Attwater
Source: British Landlords Association
Date: 2nd of March 2020