The comments made below are for general information only and all clients should take professional advice before proceeding with an investment
From 6th April 2017 tax relief from residential rental property income for finance costs are gradually being restricted over a four year period to basic rate tax relief only. The proportion of interest relieved at basic rate only will increase from 25% in the current tax year, to 50% in 2018-19, then 75% in 2019-20 and finally to 100% in 2020-21.
The old “Wear and Tear” allowance equivalent to 10% of rents was abolished from 6th April 2016 and landlords may now claim the actual costs of renewing furnishings for which detailed records must be kept
Since 1st April 2016, landlords purchasing property in England have been subject to Stamp Duty Land Tax at a rate 3% higher than normal rates which peak at 12%. The increased rates range progressively from 3% for property costing up to £125k up to a maximum of 15% for property costing more than $1.5m.
In Scotland the equivalent tax is Land and Buildings Transaction Tax and rates range from 0% for property costing up to £145k up to a maximum of 12% for property costing in excess of £750k
Capital Gains Tax (CGT) is chargeable on any profit landlords make on the sale of a buy- to let property and this charge applies to both UK resident and non-resident landlords. The rate of tax will be at 18% or 28% depending on total UK taxable income and chargeable gains for the year.
For non-UK resident landlords, the charge applies only to gains arising on or after 6th April 2015 and properties will be rebased to their market value as at that date when calculating the gain, although the tax authorities will allow a time apportionment of the whole gain in most cases if that produces a lower gain.
Non-UK residents are required to report and pay CGT within 30 days of the disposal of residential property in the UK. From 6th April 2019 a payment on account of any CGT due by resident or non-resident landlords on the disposal of residential property will require to be made within 30 days from the date of disposal.
Losses on the disposal of UK residential property are ring-fenced for use against gains arising to the same non-UK resident landlord on the disposal of other UK residential property in the same tax year, or may be carried forward indefinitely for use on the same basis in future
Non-UK resident landlords may be able to claim relief for UK taxes paid under a double tax agreement between the UK and the country in which they are tax resident.
Quarterly reporting for landlords will start from 6th April 2019 for those with turnovers over the VAT threshold (2017- £85,000). For all others, it is unlikely that mandatory quarterly reporting will be introduced until 2020 at the earliest.
The UK tax authorities are committed to speeding up the tax reporting process by means of on line digital reporting. This initiative will begin to roll out in April 2019 when it will relate to VAT only, but the ambition is to introduce the full “Making Tax Digital” programme by 2020. This will involve all organisations reporting income and gains directly to the tax authorities on behalf of their clients and customers.