COVID-19 Landlords and Tenants - UPDATED
All the latest COVID-19 (Coronavirus) news for landlords and tenants:
Landlords and tenants: measures applying to private or social accommodation,
Landlords will not be able to start proceedings to evict tenants for at least a three-month period during the current emergency,
Landlords whose tenants are experiencing financial difficulties due to coronavirus will receive a three-month mortgage payment holiday,
At the end of this period, landlords and tenants will be expected to work together to establish an affordable repayment plan, taking into account tenants’ individual circumstances.
Accountancy and tax issues facing landlords have never been more complex. In recent years, investors have seen a steady growth in both property values and rental income whilst enjoying attractive tax relief on financing costs.
However, recent changes to the tax system are now forcing property investors to reconsider how to structure their businesses. Many landlords are moving their properties into a company and purchasing any additions to their portfolio through the same company. This may be the best course of action for some, however, the options need to be evaluated on an individual basis.
From 6 April 2017, individuals have only been allowed to deduct 75% of their borrowing costs, including interest, incurred in running their lettings business. The percentage of disallowed interest will increase by 25% every year until 6 April 2020, from this point onwards all interest paid by an individual landlord will be disallowed. Instead, they will receive a tax credit equivalent to 20% of the disallowed interest to offset against their income tax liability.
How will the changes to tax relief affect you?
Highly geared investors could find they are paying tax on non-existent profits but there are some actions that might be taken to offset this.
For married couples and those in a civil partnership, joint ownership becomes particularly attractive if one of the owners is not fully utilising their personal allowance and basic rate income tax band.
For those already affected, if additional properties are acquired, it might be more tax efficient to buy them in a company.
A number of property investors are taking advantage of the fact that the interest relief restrictions do not apply to furnished holiday lettings. To qualify, properties must be available for letting for at least 210 days and actually let for 105 days but no more than 31 days to the same occupants in a tax year.
How will this affect you if you own the property through a company?
The restriction of the deductibility of finance costs will not apply to corporate landlords. A company can continue to deduct all the interest and finance costs in calculating the taxable profits of its property investment business.
However, a company may find it has to pay a higher rate of interest or have more difficulty securing mortgages on its rental properties. Lenders could insist that the directors of the company provide personal guarantees before advancing loans to the company.
The advantages of investing in property through a limited company largely depend on how long you intend to hold the property for.
If your aim is to eventually leave your property to your children then holding properties in a company could be tax advantageous, especially regarding inheritance tax.
Our aim through comprehensive tax planning is to reduce the impact of the loss of relief and protect your cashflow.
Let Property Campaign
The Let Property Campaign is an opportunity for landlords who owe tax through letting out residential property, in the UK or abroad, to get up to date with their tax affairs in a simple way and take advantage of the best possible terms. If you’re a landlord and you have undisclosed income, you must tell HMRC about any unpaid tax now. You’ll then have 90 days to work out and pay what you owe.
The Let Property Campaign is an opportunity open to all residential property landlords with undisclosed taxes. This includes:
Those that have multiple properties;
Landlords with single rentals;
Specialist landlords with student or workforce rentals;
Renting out a room in your main home for more than the Rent a Room scheme threshold;
Those who live abroad or intend to live abroad for more than 6 months and rent out a property in the UK, as you may still be liable to UK taxes.
We can work out how much tax you owe, the penalties/interest chargeable and complete/submit the relevant HMRC disclosure form.
Call us on: 01244 220 062