Property Tax update: Risks & Rewards

Property Tax update: Risks & Rewards

The Government has been trying to make home ownership easier for first time buyers. However, part of their battle is not only for first time buyers to purchase properties with incentives but also to increase the supply of property available to first time buyers. The government is continually changing the legislation to address this issue, this month proposing an additional stamp duty charge between 1-3% on foreign purchasers of UK property.

Here are a few areas to be conscious of if you own properties:

• Bank of Mum & Dad contributes to 62% of first-time buyers’ property purchases (£6.5bn per year) but efforts to protect these funds from children’s marriage and divorce can create unintended tax charges if the property is eventually sold, before advice is sought . 

• From April 2017 the government introduced a property allowance to simplify the tax system for those with modest rental income (perhaps to help Air BnB landlords who might let their properties out for only a few weeks each year). The property allowance enables landlords to offset a £1,000 against property income each tax year rather than claiming the actual lower expenses incurred in the tax year. If their income for the year before the allowance is under £1,000 then there is no requirement for the individual to report rental income for the tax year (unless they are required to submit a tax return for other reasons). A similar allowance of £1,000 applies to trading income, perhaps intended for the occasional E-bay trader. Please get in touch if you want to know more about maximising the deductions against your rental or trading income. 

• In April 2016 HMRC ceased to allow wear & tear allowance of 10% for furnished properties. Since April 2016 it is only possible for a landlord to claim a tax deduction for the “replacement of domestic items”. A key to this is the word replacement. It is necessary for there to have been an item which has subsequently been replaced by an item of similar nature. 

• Mortgage interest restrictions. For the 2018 Tax Returns which are currently being prepared for the year to 5 April 2018 25% of mortgage interest will be restricted to a credit deduction at the basic rate of tax. For higher rate taxpayers with mortgage interest on second properties this will result in increased tax liabilities due on 31 January 2019. The restriction increases to 50% for 2019, 75% for 2020 and fully restricts interest to the basic rate of tax for 2020/21 onwards. The basic rate mortgage tax credit can also be restricted further depending on other sources of income so if you are in doubt about the position please contact us.

The above guidance is based upon the tax legislation in force when written and does not reflect any plans or proposals within the 2018 Budget on 29^th October 2018.

If you would like to know more about how to make the most of the changes to the taxation of property income please contact Mandy on 01473659777 or e-mail mandy@beatons.co.uk to arrange a meeting.