A quick refresher on Residential property tax issues (plus the usual COVID-19 support update)

Friday, April 30th, 2021

At Copia Wealth & Tax, we have a significant number of clients with interest in residential property and with many changes to the tax system affecting this area, we have put together a timely reminder of the key issues.

In addition, we have provided our latest update on the Government’s COVID-19 support measures.

i) Tax and residential property – what you need to know

Changes in taxation over the last few years have affected the following areas:

PPR relief changes

The most recent changes came into play from 6 April 2020 and comprised the following:

Impact of the Tenant Tax

The Tenant Tax or Section 24 tax came onto the scene from April 2017 and set out to change the way in which landlords would calculate tax relief on mortgage interest and finance costs.

As a result, mortgage, loan, and overdraft interest costs are only allowable for basic rate tax relief and are not included in calculating taxable rental income, whereas previously, on their rental properties, landlords were able to deduct the full cost of any mortgage interest payments in arriving at their taxable profit.

The changes were brought in on a phased basis over 4 years, starting from 5th April 2017. In the 2019/20 tax year, 75% of finance costs were restricted to 20% tax relief, rising to 100% by 2020/21 – so the impact of Section 24 has now peaked for the tax year just ended.

These changes have forced many UK landlords into a higher rate of tax despite their income not having increased, resulting in a reduction in cash flow and even, in some cases, turned properties into a loss-making position forcing potential sale.

There have been issues for landlords originally within the 20% tax band who have been pushed into a higher tax bracket by these changes only to find discovered that child tax credit assessments and student loan repayments are adversely affected.

So, if you are a landlord with income near or above the 40% tax bracket (currently £50,270) and you have mortgages on your residential property portfolio you will need to consider if there any actions you can take, such as transferring properties to your spouse, to mitigate the impact. Incorporating your property portfolio is another option but the costs of this against the benefits need to be considered carefully.

CGT deadlines on residential property sales

Changes to the timing of any capital gains tax (“CGT”) payments that may be due from the future sale of residential property took effect from 6 April 2020 providing a requirement to pay any CGT within 30 days of completion of the property sale. Prior to this, it was possible to have up to a 22-month window to pay CGT.

Alongside the revised payment date, there is also a requirement to file a new online property disposal return with HMRC within the 30-day period estimating the expected rate of CGT to apply to the gain that may need to be corrected when your next self-assessment tax return is prepared.

If a disposal means there is no gain to report or if the gain made is covered by exemptions or losses, there is no requirement to complete a property disposal return. 

Summary

Perhaps it is time to consider a review of your property portfolio to ensure the impacts of the above rule changes are understood and any potential mitigation is possible – as ever the Copia Wealth & Tax team is here to help just call us or make an enquiry through the website to book a review.

ii) Latest COVID-19 support update

Coronavirus Job Retention Scheme (CJRS)

Employers can now submit CJRS claims for periods in April, and these must be completed by Friday 14 May. Whilst you can claim before, during, or after you process your payroll, if possible, it is best to make your claim once you are sure of the exact number of hours your employees will work so you do not have to amend your claim later.

As before, the UK Government will pay 80% of furloughed employees’ usual wages for the hours not worked; this will continue until the end of June, up to a cap of £2,500 per month.

In July, CJRS grants will cover 70% of employees’ usual wages for the hours not worked, up to a cap of £2,187.50 per month. 

In August and September, this will then reduce to 60% of employees’ usual wages, up to a cap of £1,875 per month.

From July, employers will need to pay the difference such that furloughed employees continue to receive at least 80% of their usual wages for the hours they do not work up to a cap of £2,500 per month.

Paying back VAT deferred due to COVID-19

The webpage below details how to pay any VAT payments you deferred between 20 March and 30 June 2020. 

For those who have deferred VAT payments due between 20 March 2020 and 30 June 2020, the options are:

Please note, if you do not pay in full or make an arrangement to pay by 30 June 2021, you may be charged a 5% penalty or interest.

For more information click: Pay VAT deferred due to coronavirus (COVID-19) – GOV.UK (www.gov.uk)

Restart Grants

Businesses can apply to the Government’s Business Restart Grants scheme that supports businesses that are predominantly reliant on delivering in-person services for the general public in the non-essential retail, hospitality, accommodation, leisure, personal care, and gym business sectors.

For Wolverhampton businesses, the closing date for applications is June 30, 2021. 

You can find further guidance at www.wolverhampton.gov.uk/businessgrants.

For help with grant applications or general queries, you can contact the Council by emailing business.grants@wolverhampton.gov.uk or via its business support phoneline on 01902 290242.

For businesses outside the Wolverhampton area, it is worth checking your Local Authority website to find out about eligibility and how to make a claim.

Our experts are here to help

Copia Wealth & Tax Limited, Wolverhampton can help ensure that any residential property taxes that may fall due are kept to a minimum. 

To discover more about how we could help you do that, or, if you would like to know more about how the latest COVID-19 support update might affect you or your business, please call our expert team on 01902 783172. Alternatively, just complete our online contact form HERE and one of our specialists will be in touch.

In the meantime, stay safe and we very much look forward to hearing from you.