1) What are the tax implications of having buy-to-let property? Please give examples.
Historically, there’s been a major tax advantage if you have a buy-to-let mortgage. Those with BTL properties previously only needed to declare rental income after they had paid their mortgage, which ultimately cuts a tax bill by potentially thousands of pounds.
But since April 2017, the way landlords have had to declare their rental income has started to change, meaning most will see their tax bills rise significantly.
Until recently, landlords were able to offset mortgage interest payments against rental income. However, the tax relief is being phased out and was reduced in 2017 to 75 per cent, and for the 2018-19 tax year the restriction is now at 50 per cent.
2) Please explain how capital gains tax applies to such properties…
If you are selling a property that isn’t your main home – including a rental property – it’s likely you will have to pay Capital Gains Tax on any gain
You can offset expenses of a capital nature such as replacement windows against capital gains when the property is sold. As this might be many years later it’s important to keep records and evidence of any such expenditure.
3) What are the restrictions when it comes to mortgage interest relief on BTL homes?
Recent changes in tax relief only affects private landlords – people who own their properties as individuals (or couples), rather than through a business.
In theory, by setting up a business to own rental properties, landlords will be able to continue to declare rental income after deducting the mortgage.
However, if you’re considering doing this, it is vital to research it thoroughly, as even with this tax saving you could end up worse off.
4) Please explain the tax changes that are coming up for BTL landlords (when, what, how, what should they do)?
From April 2020, landlords will no longer be able to deduct their mortgage costs from their rental income. All of the rental income you earn will be taxable, and you’ll instead receive a 20% tax credit for your mortgage interest. This means you can cut your final tax bill by 20% of your interest.
5) Any other tax-related issues that buy-to-let landlords must consider?
Last April saw the influx of new energy regulations for landlords. These mean that all new tenancies or renewed contracts must carry at least an E rating on the Energy Performance Certificate.
This regulation will roll out across all tenancies in the next two years, with fines of up to £4,000 for non-compliance.
Rick Gannon is a serial Property Investor, HMO specialist and author of number 1 best selling property investment book, ‘House Arrest’. He is also the Founder of one of Social Media’s largest property investment communities, the HMO and Property Community Group,
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