Year End Tax Planning: Property Considerations

As we approach the end of another tax year on 5 April 2019, it is a good time to make sure that your finances and tax position are structured as efficiently as possible. There may be steps which can be taken now to minimise your tax liability or optimise choices for the future. 

The next in our Year End Tax Planning series discusses property considerations.

Throughout this text, the term spouse includes a registered civil partner. We have used the rates and allowances for 2018/19.

Residential landlord round-up

Residential landlords are continuing to feel the impact of new legislation. Interest relief restrictions for individual landlords of residential property are still being phased in, reducing the deductibility of finance costs, such as mortgage interest, interest on loans to buy furnishings, or fees incurred taking out or repaying loans or mortgages. Only a proportion is now allowed. For the 2018/19 tax year, the proportion drops to 50%, with 50% given as a basic rate deduction. Further reductions are to come. The restrictions have significant impact on the way landlords are taxed, and may push basic rate taxpayers over the threshold at which they become higher rate taxpayers.

Tip: Those impacted could consider transferring property to a lower income spouse, to take advantage of the basic rate band. There are a number of factors to take into account, such as whether the property is mortgaged, and potential stamp duty mplications. We would be happy to advise.

Budget 2018 also brought changes to the capital gains tax (CGT) regime which take
effect from April 2020 and may impact someone renting out, and then disposing of, what used to be a main home.

Historically, the final 18 months of ownership of a property has attracted a valuable CGT
exemption. This will be reduced to nine months. Also from April 2020, CGT lettings relief is no longer available unless the owner shares occupancy with a tenant. We look at this further in ‘Tax when you sell your home’.

Tax when you sell your home

When you sell your home, principal private residence relief (PPRR) means that any gain is usually exempt from capital gains tax (CGT). But problems can arise, and we consider key areas of complexity below.

It is not uncommon for someone to own more than one property, perhaps because they
regularly have to work away from ‘home’, or perhaps because they have a house in town
and another in the country. PPRR only applies to one residence. If there is more than one property being used as a residence, an election can be made nominating one as the main residence. Strict time limits apply.

Periods of absence can cause problems. You may still qualify for PPRR even if there are
periods of absence from your main residence, but the outcome depends on how long you are absent, and the reasons for absence. There are special provisions for people working
elsewhere in the UK or abroad. Please ask us for further advice in this area.

If there has been a period in which a property has been the only or main residence, special rules apply to the final period of ownership. The final 18 months of ownership has hitherto automatically qualified for CGT exemption, even if the taxpayer was living elsewhere. If the property owner is disabled or in long term care, this period is extended so that the final 36 months qualifies. Budget 2018 announced that from April 2020, the final 18-month period will be cut to 9 months. The 36-month period for the disabled or those in care is retained.

Lettings relief has also been changed by Budget 2018. Historically it has been particularly valuable for those letting out what was previously a main residence - perhaps
because conditions were unfavourable for sale - after the acquisition of a second property for use as a main residence. It is not available for a buy-to-let property, only a dwelling which has at some point qualified for PPRR for the owner.

From April 2020, it will only be available if the owner shares some period of occupancy with the tenant. We are happy to advise further.

If you have any questions relating to the sale or letting of property, we should be delighted to be of assistance.

Please do contact us for a review of your individual circumstances.

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