Tax implications for Buy-to-Let Landlords in the UK has been constantly changing the past decade. Some provisions have worked in favour of the landlords, whereas some has curtailed their liberty to make handsome profits. One thing that remains constant with time is the intent of HMRC to ensure transparency in operations.
Understanding the term – Buy-to-Let Landlords
The term Buy-to-Let Landlords suggests a condition where people buy properties with an intent to let out the same in exchange of rent. These types of properties are usually meant for residential purpose, but with time investments in hostel rooms and property for student accommodation have also come under its purview.
Tips for Buy-to-Let Landlords
#1 – 20% Flat Basic Tax Relief Credit for Mortgage Expenses
As per the latest guidelines, landlords can claim a flat 20% of their mortgage expenses as basic tax rate relief deduction from the rent that they receive from tenants.
#2 – Section 21
Earlier, landlords enjoyed a liberty of ‘no fault eviction’ where they could end the tenants’ contract by giving them two-month notice in prior. No specific reason was required from the landlord’s side. However, the section has now been repelled with a view to offer better security to the tenants with at least 6 months’ notice. On the other hand, the landlords face a problem in evacuating problematic tenants.
#3 – Amendments in Private Residence Relief or Letting Relief on CGT
As a property owner, landlords were allowed a deduction up to£40,000 from capital gains arising from sale of property. The only attached clause to the deduction was that the sold property should have been used a residence by the landlord at some point of time. In today’s context, the same deduction benefit has been withdrawn. So, you’ll get tax relief for the years that the property was your main residence, as well as for the last nine months prior to the sale. As a result, the aforesaid deduction is only applicable on the property is being used by the owner as his current residence. To qualify now, you must have been living in the property at the same time as your tenant(s).
You must report and pay any Capital Gains Tax on most sales of UK property within 30 days. The 30-day period starts from the sale completion date. Failing to report the sale and pay your tax on time is likely to land you with a penalty fee and interest charges, so it’s important to keep on top of this (it can help to have an accountant).
#4 – Rules for Energy Efficiency and Changes in Electrical Testing Regulation
Landlords should comply with Minimum Energy Efficiency Standard (MEES) regulations. Under this regulation, landlords should ensure that their premise should have an Energy Performance Certificate (EPC) and the minimum rating for the same should be E. Landlords who do not have such arrangement should execute an energy efficiency measure. The maximum cap for the concerned expense being £3,500.
From last year new regulation was introduced, Landlords will need to make sure all electrical installations in their property are inspected and tested by a qualified person every five years (at least).
#5 – Stamp Duty Cost
For Buy-to-Let Landlords, the Government has imposed a 3% stamp duty surcharge.
Property is seen differently when it is used for generating revenue such as rent. As a resident, the rules of property taxation are completely different. Have questions? Feel free to get in touch with us!