Update for landlords – tax planning in uncertain times

Since the outbreak of the Coronavirus pandemic, the Government has introduced a large variety of measures to help support individuals and businesses respond to the resultant financial impacts.
Numerous grants, loan arrangements and payment deferral schemes have been introduced with additional measures being announced in response to changing lockdown restrictions.
Much of the Government support for businesses has been targeted towards specific sectors and, to date, no targeted support has been introduced to assist residential property landlords who are adversely affected by the pandemic.

However, there are some general financial support measures available and some pertinent tax planning opportunities that may be appropriate.

Coronavirus support

  • Landlords may be able to apply to their mortgage provider for a 3-month payment holiday.
  • Those adversely affected by coronavirus were able to defer their July 2020 self-assessment tax payment by 6 months to 31 January 2021.

HMRC have now announced that where the total payment due on 31 January 2021 does not exceed £30,000, taxpayers can apply for an online instalment plan to pay the liability monthly over a period of up to 12 months.  However, interest charges will still apply and the plan needs to be set up no later than 60 days after the tax due date.

Tax planning

  • The phased removal of marginal rate tax relief on mortgage interest and other finance charges ended on 5 April 2020.  Qualifying expenditure will now only receive basic rate tax relief.
  • Landlords should therefore take account of the tax relief available when making decisions in relation to new or ongoing funding.  It is also important to consider the adverse effect that these changes can have on other allowances including Child Benefit entitlement.
  • Landlords will need to review the level of their costs on an annual basis to establish whether they can reduce their overall tax liability by electing to use the £1,000 property allowance.
  • Landlords contemplating buying additional properties may be able to take advantage of the temporary reduction in the rates of SDLT for properties purchased on or before 31 March 2021.
  • Landlords who are considering transferring properties to others (including trusts) may wish to consider whether now would be an appropriate time to implement such planning.  It may be that the current market value and therefore associated tax liabilities are lower.
  • In appropriate circumstances, the transfer of property ownership (or a transfer into joint names) can achieve a significant reduction in the levels of Income Tax due on profits and Capital Gains Tax due on sales.  Similarly, married couples should review the split of the underlying beneficial ownership of jointly owned property.
  • Landlords should be aware that with effect from 6 April 2020, sales of UK residential property need to be reported to HMRC within 30 days and the associated Capital Gains Tax paid.
  • Finally, landlords who are likely to see their profits reduced, may wish to consider their overall financial affairs to ensure that any tax savings that can be achieved due to a reduction in their marginal rates of tax are actioned.

For more information on this article speak to Matt Herd.

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