Taxes for UK landlords: The complete guide for 2019/2020 - www.hamiltonfraser.co.uk/landlord-insurance

 
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Taxes for UK landlords: The complete guide for 2019/2020 - www.hamiltonfraser.co.uk/landlord-insurance
Taxes for UK landlords:
The complete guide for
2019/2020

www.hamiltonfraser.co.uk/landlord-insurance
Taxes for UK landlords: The complete guide for 2019/2020 - www.hamiltonfraser.co.uk/landlord-insurance
02                     Taxes for UK landlords: The complete guide for 2019/2020                                                                                                                                                                                         03

                           Taxes for UK landlords:
Total Landlord Insurance

                                                                                                                                                                                                                                                                        Total Landlord Insurance
                           The complete guide for 2019/2020
                           Property taxes can be a complicated business, especially for new
                           landlords. In the flurry of activity around getting your property ready to
                           rent, choosing a tenant and planning what you’ll do with your anticipated
                           new income, it’s all too easy to forget about tax.
                           Getting on top of capital gains tax, stamp duty,            When you buy property - stamp duty
                           corporation tax, expenses and all the other things
                           landlords have to think about can be a minefield.           If you buy a property over a certain price in the UK,
                           That’s where this guide comes in. As much as is             you are eligible to pay tax. The exact tax you pay
                           humanly possible, we’ll tell you what you need to           and the specific value of the property that triggers
                           know and do about the taxes you’ll pay as a landlord,       it, will be different depending on your location
                           how to ensure you’re paying your fair share, clarify key    and circumstances; and you should always seek
                           terms, and give you the most up-to-date info about all      professional advice for personal tax related queries.
                           things tax for 2019/20.                                     In England and Northern Ireland, individuals pay           These are only the basic rules. If you’re buying for the   higher rate of 40 per cent tax applies to incomes over
                           We can’t guarantee edge-of-your-seat thrills and            Stamp Duty Land Tax (SDLT) on residential properties       first time, the thresholds for paying stamp duty are       £50,000 - and if you make more than £150,000, you
                           spills, it’s tax after all, but we will touch on the most   worth £125,000 or more, and on non-residential             generally higher, so you may not have to pay. If you’re    pay the additional rate of 45 per cent.
                           crucial things you need to know for the coming year         properties or land worth £150,000 or more. You must        buying-to-let, stamp duty rates are tiered and start
                                                                                                                                                                                                             As a landlord, you’re entitled to a £1,000 tax-free
                           and beyond. In this guide we’ll address:                    send an SDLT return to HMRC and pay your SDLT              at a lower value than those for other home buyers. In
                                                                                                                                                                                                             property allowance: if you make less than £1,000
                                                                                       within 30 days of completing the purchase. Your            England, the rates look like this:
                           1. What taxes do landlords pay?                                                                                                                                                   a year from letting property, you don’t need to tell
                                                                                       solicitor, agent or conveyancer, if you have one, can
                                                                                                                                                   Property price                   Buy to let stamp         HMRC. If you are self-employed as a landlord - in
                           2. Tax effective property ownership                         do this on your behalf, or you can file a return and pay
                                                                                                                                                  		                                   duty rate             other words, you don’t run a limited company and you
                                                                                       the tax yourself.
                           3. Property expenses - what you can and can’t claim                                                                                                                               file a self-assessment tax return - you’re also entitled
                                                                                       Property buyers in Scotland pay Land and Buildings                £0 - £40,000                   0 per cent           to a £1,000 tax-free trading allowance.
                           4. Extra tax savings for married couples                    Transaction Tax (LBTT) on residential properties              £40,001 - £125,000                 3 per cent           If you make between £1,000 and £2,500 a year from
                           5. New buy to let tax changes for 2019/2020                 worth more than £145,000, and on non-residential
                                                                                                                                                                                                             letting property, you must make HMRC aware of the
                                                                                       properties worth more than £150,000. Scotland also           £125,001 - £250,000                 5 per cent
                           Bear in mind, this guide is meant as a general                                                                                                                                    fact. If you make between £2,500 and £9,999 after
                                                                                       has an Additional Dwelling Supplement, payable on
                           overview of the current tax landscape. For                                                                               £250,001 - £925,000                 8 per cent           allowable expenses, or over £10,000 before allowable
                                                                                       properties worth more than £40,000. You pay this
                           furthermore in depth personal tax advice tailored                                                                                                                                 expenses, you will need to make a self-assessment
                                                                                       if you already own a residential property and buy           £925,001 - £1.5 million             13 per cent
                           to your specific requirements and circumstances,                                                                                                                                  tax return and may have to pay income tax.
                                                                                       another. All LBTT is paid to Revenue Scotland through
                           make sure you seek professional advice from a tax           an online portal.                                                 £1.5 million +                15 per cent           If you’re filling out a paper form to make your self-
                           specialist.                                                                                                                                                                       assessment tax return, you must do this by 31
                                                                                       Property buyers in Wales pay Land Transaction Tax
                                                                                                                                                                                                             October each year. If you’re returning your self-
                           1. What taxes do landlords pay?                             (LTT) on residential properties worth more than            While you’re letting property - income
                                                                                                                                                                                                             assessment tax return online, you must do so by 31
                                                                                       £180,000, and on non-residential properties worth          tax                                                        January each year.
                           Let’s begin by looking at what property taxes exist, and    more than £150,000. As in Scotland, there are
                           when they have to be paid.                                                                                             If you make money from letting a property, you may
                                                                                       additional charges for residential properties worth
                                                                                                                                                  have to complete a self-assessment tax return,
                           There are three key moments to think about in the           more than £40,000 if you already own a residential
                                                                                                                                                  depending on your total income.
                           property tax lifecycle. You pay tax when you buy a          property and are buying another. You must send an
                           property, every year you let the property, and later        LTT return to the Welsh Revenue Authority and pay          The rate of income tax you pay varies by income.               The expenses you are and aren’t
                           when you sell it.                                           your LTT within 30 days of completing the purchase.        In England, from 2019-20, you pay no income tax                allowed to claim for are complex:
                                                                                       Your solicitor, agent or conveyancer can do this on        if you earn less than £12,500 per year. You pay the
                                                                                                                                                                                                                 we’ll cover those later.
                                                                                       your behalf, or you can file a return and pay the tax      basic rate - 20 per cent of your income - on anything
                                                                                       yourself.                                                  after that income, up to and including £50,000. The

                                              Whether you have a single property or an entire portfolio, we provide comprehensive cover at a competitive price
Taxes for UK landlords: The complete guide for 2019/2020 - www.hamiltonfraser.co.uk/landlord-insurance
04                     Taxes for UK landlords: The complete guide for 2019/2020                                                                                                                                                                                       05

                           You may also have to pay class 2 National Insurance, if    You may have heard of ‘letting relief’. This was a
                           you’re running a business and:                             reduction in capital gains tax for landlords who lived
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                                                                                      in the properties they let out. Letting relief will not be
                           • You make more than £5,965 a year from letting
                                                                                      available after April 2020.
                             property
                           • Being a landlord is your main job                        You may still qualify for private residence relief,
                                                                                      however. This is a percentage reduction in capital
                           • You rent out more than one property                      gains tax, based on the number of years you lived in
                           • You’re buying new properties to let out                  a property, plus the last eighteen months before you
                                                                                      sold it.
                           You can also choose to pay National Insurance
                           payments even if you’re making less than £5,965 a          Let’s say you lived in a property for five years, then let
                           year from letting property, to keep your state pension     it out for 15. You would get private residence relief for     2. Tax-effective property                                For self-assessment, all rents and expenses from
                                                                                      those first five years, plus the last 18 months - that’s                                                               similar properties are pooled together into a single
                           topped up.
                                                                                      six and a half years. Six and a half years is 32.5 per cent
                                                                                                                                                    ownership                                                figure. This means you have to divide your properties,
                           When you sell property - capital gains                     of the time you owned the property. You’d therefore           Managing your portfolio to pay your fair share of tax    rents and expenses up along the following lines:
                           tax                                                        gain private residence relief on 32.5 per cent of the         is not easy. The next step in our tax guide for new      • UK rentals - any buy to let or shared house rented
                           When you sell a property that’s not your home - a          gain you make when you sell the property.                     landlords focuses on who has to pay tax, how multiple      out on a shorthold tenancy
                           house you bought, renovated, and let out for instance                                                                    properties and portfolios are taxed, and what happens
                                                                                      Corporation tax vs. income and capital                        if you make a loss. For accurate tax advice tailored     • Overseas rentals - any properties abroad let on a
                           - and make a profit, you may be liable for capital gains
                                                                                      gains tax                                                     to your personal circumstances, always consult a           long lease
                           tax. You may also be liable to pay capital gains tax on
                           inherited property.                                        If you choose to do business as a limited company             professional.                                            • Holiday lets - homes located within the European
                                                                                      rather than as a private individual, you may pay              Who pays property tax?                                     Economic Area that qualify as furnished holiday
                           HMRC provide a tax calculator for working out how
                                                                                      corporation tax instead of income and capital gains                                                                      lets. Holiday homes outside the EEA slot into the
                           much capital gains tax you have to pay, if any. The                                                                      Whoever benefits from owning a property pays the tax.
                                                                                      tax. This means you could possibly have to register for                                                                  overseas rental category
                           calculation is based on the gain - meaning the market                                                                    Finding that person means following the money and
                                                                                      corporation tax, file a corporation tax return, and either
                           value of your property, minus any estate agents’ fees,                                                                   dividing it between owners, or those who are paid from
                           solicitors’ fees, and the costs of major improvement
                                                                                      pay corporation tax or report that you have none to                                                                    What happens if a landlord makes a
                                                                                      pay.                                                          it, such as property managers.
                           works (building an extension would be included in the                                                                                                                             loss?
                           calculation; redecorating would not).                      However, tax theory and legislation is a complicated          Example
                                                                                                                                                                                                             For tax purposes, you make a loss if your allowable
                                                                                      business. If you want to know more, the National              Imagine you’re letting out a property and allowing       expenses come to more than your rental income
                           As such the level of capital gains tax differs for basic
                                                                                      Landlords’ Association runs one day training courses          someone else to keep the money in return for             during a year. This loss is carried forward to offset
                           rate taxpayers, it is currently set at 28 per cent for
                                                                                      about the specific taxes involved - a general course          managing the property. Even though you don’t receive     against your future rental profits.
                           higher and additional rate taxpayers.
                                                                                      for all landlords’ tax issues, and another specifically       a penny of rental income, you need to declare this on
                           From April 2019 onwards, non-UK residents have to          focused on capital gains tax.                                                                                          You cannot store up losses to use when it suits you -
                                                                                                                                                    a self-assessment return, indicating where the money
                           pay within 30 days of completing the sale. The same                                                                                                                               for instance, to avoid becoming liable for higher rate
                                                                                                                                                    ends up - in this case, with the third party acting as
                           rule will apply to UK residents from April 2020.                                                                                                                                  income tax. You must offset losses against available
                                                                                                                                                    your agent.
                                                                                                                                                                                                             profits each year, until they are exhausted.
                                                                                                                                                    You need to do this to avoid tax mismatches. Property
                                                                                                                                                                                                             Example
                                                                                                                                                    owners who pay higher or additional rate income tax
                                                                                                                                                    sometimes attempt to hide their income and reduce        Your property earns £15,000 each year in rent.
                                                                                                                                                    their tax bills by passing off someone else - a basic
                                                                                                                                                                                                             In the 2018/19 tax year, your allowable expenses
                                                                                                                                                    rate taxpayer - as the person who benefits from the
                                                                                                                                                                                                             come to £18,000, leading to a £3,000 loss for the
                                                                                                                                                    income. There are ways to do this legally, either by
                                                                                                                                                                                                             year. You pay no tax that year.
                                                                                                                                                    transferring allowances within a marriage or civil
                                                                                                                                                    partnership, or forming a business partnership, but      In 2019/20, you bring your expenses under control
                                                                                                                                                    misrepresenting your tax situation by hiding where the   - down to £13,000 - and make a £2,000 profit. The
                                                                                                                                                    money goes is not one of them.                           loss from the previous tax year is deducted from your
                                                                                                                                                                                                             profit. You carry forward a loss of £1,000, and pay no
                                                                                                                                                    What about landlords with more than                      tax for 2019/20.
                                                                                                                                                    one property?                                            In 2020/21, your expenses come down further, to
                                                                                                                                                    Many landlords have several properties. When this is     £11,000. You’ve made a profit of £4,000. Deduct the
                                                                                                                                                    the case, tax liabilities are considered much the same   loss of £1,000 to leave a taxable income of £3,000.
                                                                                                                                                    as when running any other business.                      You’re now liable to pay income tax.

                                              Whether you have a single property or an entire portfolio, we provide comprehensive cover at a competitive price
Taxes for UK landlords: The complete guide for 2019/2020 - www.hamiltonfraser.co.uk/landlord-insurance
06                     Taxes for UK landlords: The complete guide for 2019/2020                                                                                                                                                                                    07

                           3. Expenses - what you can and                               What are self-employed landlords
                           can’t claim                                                  allowed to claim as income tax
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                                                                                        expenses?
                           As a landlord, you should claim property expenses.
                           Every pound spent on a property reduces profits,             HMRC provides a checklist of allowable income tax
                           which reduces your income, which reduces your tax            expenses for landlords. Exactly what you’re allowed
                           liability. It’s not tax avoidance - it’s paying your fair    to claim will vary depending on whether you’re letting
                           share; no more and no less.                                  a residential property, a furnished holiday let or a
                                                                                        commercial property.
                           If you’re self-employed, you’re entitled to a £1,000
                           tax-free property allowance, and another £1,000              Residential landlords can claim for the day-to-day
                           tax-free trading allowance. However, if you’re claiming      expenses of running their properties, including:
                           your £1,000 tax-free ‘trading allowance’, you cannot         • Bad debts
                           claim any business expenses. The allowance is there
                           for low income side businesses - chances are that            • Business costs like phone calls, travel and running
                           you have more expenses and more income to handle.              a home office
                                                                                        • Fees for services by professionals like
                                                                                          accountants, letting agents, solicitors or surveyors
                                                                                        • Ground rent on the property
                               You should only claim tax-free
                               trading allowance if your total                          • Insurance cover, including for buildings, contents,
                               income from letting property is                            and rent guarantee

                               between £1,000 and £2,000 a year.                        • Interest on loans and credit purchases
                                                                                                                                                 Business costs                                           view new properties, but only if you end up buying the
                                                                                        • Repairs to and replacements for the property
                                                                                                                                                                                                          property.
                                                                                                                                                 HMRC publishes guidance on allowable expenses for
                                                                                        • Services like cleaning or gardening
                                                                                                                                                 self-employed people. These include:                     Secondly, staff expenses. You can pay friends, family
                           Landlords can easily overlook rental income that             • Utility bills and council tax (while the property is                                                            and employees who do not own a share of your
                           they should include in a self-assessment tax return. If                                                               • Office, property and equipment
                                                                                          unoccupied)                                                                                                     property, if they’re doing work related to running
                           you retain money from a deposit to pay for repairs or                                                                 • Car, van and travel expenses                           the property. The rate of pay should reflect the
                           cleaning when a tenant leaves, for example, this must        Some of these are straightforward, but some -
                                                                                                                                                                                                          work undertaken - paying your husband £50,000 to
                           be included in your tax return.                              especially business expenses, interest and repairs -     • Clothing expenses
                                                                                                                                                                                                          keep the books for a buy to let will be treated as tax
                                                                                        often trip up new landlords. We’ll cover those in more   • Staff expenses
                           Example                                                                                                                                                                        avoidance. You can also pay for training, as long as
                                                                                        detail.
                                                                                                                                                 • Reselling goods                                        you’re reinforcing existing skills. Buying a book or a
                           You retain £500 from a £750 deposit to clean carpets         Bad debts                                                                                                         guide on property tax for landlords is an allowable
                           and redecorate after a tenant leaves your property.                                                                   • Legal and financial costs                              expense, but signing up for a get-rich scheme for
                           You must add that £500 to the income you declare on          Rent arrears are the most likely bad debt for a
                                                                                                                                                 • Marketing, entertainment and subscriptions             property investors is not.
                           your tax return. You must also add it to the allowable       property business.
                           expenses you claim on your tax return, by including          A debt does not become ‘bad’ just because someone        A self-employed landlord can claim some of these -
                           the bills for cleaning and redecoration.                     owes the money. The landlord must make some              the costs of travel with your own vehicle and working
                           The same logic applies if the tenant pays for extra          reasonable effort to recover the money, like launching   from home - using ‘simplified expenses’. Simplified
                                                                                        court proceedings or passing the case to a debt          expenses use a flat rate for these costs to avoid            You can’t use simplified expenses
                           services throughout the year, like gardening costs, or
                           if you reduce the rent to repay a tenant for the cost        collector. Once it’s clear that the debt will not be     complicated calculations: they’re by far the easiest         if you’re running your properties
                           of a repair they carried out. When you fill in your tax      recovered - if the tenant declares bankruptcy, for       way to claim expenses.                                       through a limited company, or if
                           return, you still add the full rental income, but you also   example - the debt has gone bad, and become a            There are some specific things to think about here, as       you’re in partnership with one.
                           add the bill for materials and tradesmen paid for by         business expense.                                        a landlord.                                                  For limited companies that you
                           the tenant as allowable expenses.
                                                                                                                                                 Firstly, your travel expenses. HMRC does not allow           run from home, there are formulas
                           You are the landlord - you benefit from owning the                                                                    you to claim “regular and predictable” travel between        for splitting your bills between
                           property - the tax liability and the book-keeping                                                                     your home and your place of work. This means you             personal and business use.
                           responsibility both lie with you.                                                                                     can’t claim for travelling between your home and your
                                                                                                                                                 existing properties. You can claim for travelling to

                                              Whether you have a single property or an entire portfolio, we provide comprehensive cover at a competitive price
Taxes for UK landlords: The complete guide for 2019/2020 - www.hamiltonfraser.co.uk/landlord-insurance
08                     Taxes for UK landlords: The complete guide for 2019/2020                                                                                                                                                                                          09

                           Fees for professionals                                       You can claim ‘replacement of domestic items’ relief         4. Extra tax savings for married                            So, to benefit from Marriage Allowance, you must be
                                                                                        for things like:                                                                                                         married to (or in a civil partnership with) someone
                           These are bills from accountants, agents, solicitors                                                                      couples
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                                                                                                                                                                                                                 who does not pay income tax, or whose income is
                           and surveyors.                                               • movable furniture; for example, beds and free-
                                                                                                                                                     Tax rules concerning married couples are                    below £12,500 a year. You must also be a basic rate
                                                                                          standing wardrobes
                           Costs related to the day-to-day running of the                                                                            complicated but can enable individuals to shift their       taxpayer. It doesn’t matter if you live abroad or are
                           business, like chasing bad debts, evicting tenants           • furnishings; for example, curtains, linens, carpets        assets between each other in a legal and above-             receiving a pension – as long as you have a personal
                           in rent arrears and keeping financial records are              and floor coverings                                        board way to reduce their tax bill.                         allowance for income tax, you can claim Marriage
                           allowed. Costs related to buying, selling or planning        • household appliances; for example, televisions,                                                                        Allowance.
                           applications for a property are not allowed – they are                                                                    Here we will provide an overview of some of the
                                                                                          fridges and freezers                                       ways in which a couple can do this. However, given          The person with the lowest income needs to claim
                           part of your capital gains tax calculation when you sell
                                                                                        • kitchenware; for example, crockery and cutlery             the particularly complex nature of tax relating to          Marriage Allowance online. It can take up to two
                           the property.
                                                                                                                                                     married couples it may be advisable to consult a tax        months to process the claim. The person with the
                                                                                        Replacement of domestic items relief includes any
                           Interest                                                                                                                  professional to carry out a full review of your specific    higher income will get their new personal allowance
                                                                                        sale or part exchange of the old item, as well as any
                                                                                                                                                     situation.                                                  when they send in their next self-assessment tax
                           If borrowed money is spent on business expenses,             incidental costs involved in disposal or delivery.
                                                                                                                                                                                                                 return.
                           the source of the borrowing is irrelevant. This allows
                                                                                        To claim this relief, you must have bought the item          If one of you doesn’t pay income tax:
                           a landlord to buy property business materials on                                                                                                                                      If you both pay income tax: setting up a
                           a personal overdraft or credit card, and claim any
                                                                                        for the property, and removed the old one. You               Marriage Allowance
                                                                                        cannot claim the initial cost of fitting out a residential                                                               partnership
                           interest paid as a business expense.                                                                                      Marriage Allowance can work for couples where one
                                                                                        property for rental. You also cannot claim the full                                                                      If you’re both basic rate taxpayers, one option is to
                           Many landlords miss out on the considerable tax                                                                           person is earning less than the personal allowance,
                                                                                        cost of upgrading the item. If you replace a £1000                                                                       set up a business partnership. Business partners
                           saving by failing to include borrowings against their                                                                     (which increased from £11,850 in 2018/19 to £12,500
                                                                                        sofa with a £1200 sofa bed, you’re adding value:                                                                         share responsibility for any losses the business
                           own home to raise cash for buy to let deposits or                                                                         in 2019/20) and the other person pays income tax
                                                                                        you can claim back the first £1000 cost as you’re                                                                        makes, any bills the business incurs, and the profits
                           refurbishments.                                                                                                           at the basic rate, which in 2019/20 usually means
                                                                                        replacing like with like, but the remaining £200 is an                                                                   from the business – but each partner only pays tax
                                                                                                                                                     their income is between £12,500 and £50,000.
                           You can only claim the interest - not the actual cash        improvement and you can’t claim it.                                                                                      on their share. Setting up a partnership means you
                                                                                                                                                     The marriage tax allowance went up from £1,190
                           amount - and you must prove the borrowed money               If you’re letting out a fully furnished property, you        in 2018/19 to £1,250 in 2019/20. This means the             can avoid one person moving into the higher rate for
                           was spent on buying land, property or equipment              can claim Replacement Domestic Item relief, which            potential tax saving from the higher tax earner’s bill in   income tax.
                           for the property business or funding repairs or              took the place of wear and tear allowance from 2016.         2019/20 is up to £250.
                           improvements.                                                Under this new scheme, the initial cost of purchasing
                                                                                        domestic items for a dwelling house isn’t a deductible
                                                                                        expense so no relief is available for these costs. Relief
                                                                                        is only available for the replacement item, including:
                               The rules for landlords claiming                         • movable furniture for example beds, free-standing
                               tax relief on finance costs are                            wardrobes
                               changing, and the specific                               • furnishings for example curtains, linens, carpets,
                               amounts you’re allowed to claim                            floor coverings
                               will get smaller every year until                        • household appliances for example televisions,
                               2021. We’ll cover this later.                              fridges, freezers
                                                                                        • kitchenware for example crockery, cutlery
                                                                                        You cannot claim the costs of buying property,
                           Repairs and replacements
                                                                                        getting it into a rentable condition, or making
                           A ‘replacement’ means replacing or renewing part of          improvements. These expenses are part of your
                           the fabric of the property, like a pump for the boiler,      capital gains tax calculation when you come to sell
                           a tile for the roof, or a like-with-like kitchen refit. An   the property - you had to spend that money to make
                           ‘improvement’ is a substantial upgrade that adds             what you did on the sale, so it’s subtracted from your
                           value: an extension, a loft conversion, or replacing         gain before capital gains tax applies.
                           a chipboard and Formica fitted kitchen with an oak
                           and granite one. You can’t claim improvements as             You cannot claim “regular and predictable” travel
                           expenses for income tax purposes.                            costs - like journeys between your home and office,
                                                                                        or between the properties you already rent.
                                                                                        You cannot claim wear and tear allowance on a
                                                                                        property you are not letting as fully furnished.

                                              Whether you have a single property or an entire portfolio, we provide comprehensive cover at a competitive price
Taxes for UK landlords: The complete guide for 2019/2020 - www.hamiltonfraser.co.uk/landlord-insurance
10                     Taxes for UK landlords: The complete guide for 2019/2020                                                                                                                                                                                     11

                           Example                                                   If you might pay higher
                           As a couple, you earn £50,000 from rent. If this is       rate income tax: setting up
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                           one person’s income, they would pay the higher rate       a private limited company
                           of income tax – 40 per cent. 40 per cent of £50,000
                                                                                     Private limited companies are legally
                           means a £20,000 tax bill.
                                                                                     separate from the people who run them, have
                           If this rent is paid to a partnership, and each partner   separate finances from the people who run them,
                           has a 50 per cent share, each partner receives            and can keep any profits they make after paying
                           £25,000 in rental income. That only qualifies for the     corporation tax.
                           basic rate of income tax – 20 per cent. 20 per cent of
                                                                                     The advantage of a private limited company is that
                           £25,000 each is £5,000 each.
                                                                                     you can pay yourself a salary within the basic rate
                           The couple’s total tax bill is £10,000. However if the    of income tax, and have your partner claim Marriage
                           share of the property is not equal then percentage        Allowance, or pay your partner a separate salary.
                           payments and the rules around it will differ. We advise   The rest of your profits will be paid as dividends to
                           you contact a property tax professional to assess         people with a share in the company. Shares can also     5. New tax changes for buy to let                           the time they lived in the property plus the final 18
                           your percentage split.                                    be bought, sold and transferred if you want to bring                                                                months. If the changes go ahead, this 18 month relief
                                                                                     more members of your family into the company. It’s a    landlords                                                   period will come down to just nine months. Lettings
                           You’ll need to choose a name for your business
                                                                                     way to make sure you don’t end up paying income tax     As if buy to let tax wasn’t fiddly enough, the rules        relief will also only apply for landlords who lived with
                           (it can’t be too similar to an existing company’s
                                                                                     at the higher rate.                                     also change fairly regularly. A range of new measures       their tenants while they were renting the property out.
                           name), and choose a ‘nominated partner’ who will
                           be responsible for sending the tax return for the         The disadvantage is that it takes more work to set up   were introduced in the 2019 tax year for landlords to       If these changes go ahead, they will be introduced in
                           business. The nominated partner must register the         a private limited company than a partnership. You’ll    familiarise themselves with.                                April 2020.
                           partnership with HMRC.                                    need to choose a company name and registered            These include changes to mortgage interest tax relief,      Mortgage interest tax relief
                                                                                     address, appoint directors and a company secretary,     personal allowance, capital gains tax allowance and
                           Both members of a partnership must be registered
                                                                                     establish and issue at least one share, and draw up a   proposed changes to how capital gains tax is paid on        The government began phasing out mortgage
                           with HMRC. Both partners must send their own self-
                                                                                     memorandum and articles of association which set        rental properties you used to live in.                      interest tax relief by 25 per cent each year in 2017,
                           assessment tax returns and pay income tax.
                                                                                     the rules for running the company.                                                                                  planning to end it completely by 2021. As a result, this
                           It’s a good idea to set up as a limited liability                                                                 Personal allowance increase                                 is the last year that landlords can deduct the interest
                                                                                     It’s only worth doing if you make more than £92,700
                           partnership (LLP). Partners in an LLP aren’t personally                                                           The personal allowance for 2019 to 2020 is                  paid on their mortgage from their income, although
                                                                                     a year in rental income (the basic allowance for two
                           liable for debts the business can’t pay – this keeps                                                              increasing from £11,850 to £12,500. The personal            they can only deduct 25 per cent of the interest paid.
                                                                                     people).
                           you safer in the event that your business struggles in                                                            allowance refers to income you earn from your               Next year you won’t be able to deduct any.
                           future.                                                                                                           property before paying tax on it. A higher allowance        Instead, landlords will be given a 20 per cent tax
                                                                                                                                             effectively means holding onto more of your profits.        credit for all their property finance costs. The aim
                                                                                                                                             Because the allowance has increased, so has the             of the policy is to increase the amount of tax paid
                                                                                                                                             higher-rate threshold. You now have to earn more            by higher or additional-rate landlords, who used to
                                                                                                                                             than £50,000 before you enter the 40 per cent tax           receive generous tax deductions. Basic rate tax-
                                                                                                                                             bracket.                                                    payers should end up paying more or less the same
                                                                                                                                                                                                         as before.
                                                                                                                                             Capital gains allowance increase
                                                                                                                                             As mentioned earlier in this guide, capital gains tax       Managing your liability
                                                                                                                                             is paid when you sell a property. The capital gains         Understanding your own tax liability will help you to
                                                                                                                                             tax allowance is the amount of profits you can earn         make the most out of your property assets. As we’ve
                                                                                                                                             before paying tax.                                          discussed, you pay tax when buying, letting or selling
                                                                                                                                             The government is increasing the allowance from             a property; you become liable for higher tax brackets
                                                                                                                                             £11,700 to £12,000. Anything above the allowance            based on the value of the property and your overall
                                                                                                                                             limit will be taxed at 18 per cent for basic rate           income. Managing your liability is a matter of knowing
                                                                                                                                             taxpayers and 28 per cent for higher or additional          exactly what you can and can’t claim as expenses.
                                                                                                                                             rate taxpayers.                                             While there could be further buy to let tax moves,
                                                                                                                                             There are also proposed changes to how capital              keeping accurate records of your costs, staying
                                                                                                                                             gains tax is paid on properties that you used to live in.   abreast of changes and always running your
                                                                                                                                             As mentioned earlier, property owners who are selling       decisions past a property tax expert will leave you on
                                                                                                                                             a second home can claim private residence relief on         the right side of HMRC.

                                             Whether you have a single property or an entire portfolio, we provide comprehensive cover at a competitive price
Taxes for UK landlords: The complete guide for 2019/2020 - www.hamiltonfraser.co.uk/landlord-insurance
For more resources and advice, please go to our website
https://hamiltonfraser.co.uk/knowledge/

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November 2019
Taxes for UK landlords: The complete guide for 2019/2020 - www.hamiltonfraser.co.uk/landlord-insurance
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