UK individual landlords have a lot of penal tax legislation directed towards them. I have specialised in the taxation of such landlords for many years now. Accordingly, I am going to list out reminders of some of the tax issues and requirements, together with any planning opportunities available.
The Capital Gains Tax (CGT) Pay and File regime
When an individual landlord (or trustees or personal representatives) completes the sale of a residential property which they have been renting out, they have a requirement to file an online CGT return and pay the relevant CGT within 60 days of completion. This new CGT reporting regime is in addition to declaring the gain on the normal self-assessment tax return, not instead of. This could also apply to the sale of a rented residential property subsequent to acquisition by a gift or a transfer as part of a divorce settlement.
It is vital that clients tell us as soon as they have completed the property sale, in order to allow sufficient time to submit the CGT return within the required timescale, and pay the appropriate CGT.
You only have to pay and file a CGT property return within 60 days of completion if CGT is actually payable on the relevant capital gain. If no CGT is payable, then the CGT pay and file regime is not in point. However, non-UK resident landlords must declare disposals regardless of whether a chargeable gain arises or not.
When the self-assessment tax return alone will suffice
There is a very good opportunity when it is possible to file a self-assessment tax return and remove the requirement completely to submit a CGT property return.
If you can manage to do this, it also results in the CGT not needing to be paid until the normal 31st January payment deadline (i.e. much later)! Good cashflow!
To do this, the taxpayer must file its self-assessment (SA) tax return within 60 days from the date of completing the sale of the property. If you do this, you will displace the need to submit a property return.
Daniel sells his rental flat, within an unconditional exchange on 23rd March 2024. The gain will therefore be taxed in the fiscal year 2023/24. He completes the sale of the flat on 20th May 2024. So long as Daniel can file his 2023/24 SA tax return by 19th July 2024 (i.e. within the 60 day window), then a property return will not be required to be submitted.
However, to do this, the CGT reported on the SA return must be at least equal or greater than what would have been reported on the property return.
The CGT rates
The rates of CGT for individuals on chargeable gains relating to rented residential property are 18% for basic rate income taxpayers and 28% for higher rate income taxpayers.
Furnished holiday lettings
This 60 day CGT pay and file regime will also apply to the disposal of furnished holiday lettings. However, hopefully, if all the relevant conditions are met, a successful claim for Business Asset Disposal Relief can be made resulting in a CGT rate of only 10%.
Stamp Duty Land Tax (SDLT)
Landlords purchasing buy to let residential properties must factor in, and budget for, the higher SDLT rates on acquisition. There is a 3% SDLT surcharge on purchasing these properties and it is therefore not uncommon to see landlords paying up to 13% or 15% SDLT. In Scotland, the surcharge is 6%!
The wear and tear of the furniture
Landlords of furnished residential properties were previously allowed to claim 10% of their net rental income, to allow for the ‘wear and tear’ of the furniture etc within their rental properties. However, this allowance was scrapped from 6th April 2016. Landlords can now only claim tax relief when they replace furniture, furnishings or kitchenware provided for the tenant’s use in the property. A deduction is only available for the replacement cost, not the cost of the initial purchase.
Ask the landlord if there was something similar there before, so as to confirm that it has been replaced. It would be a good idea to take photos of the items being replaced.
If Fred (a landlord) sells his London rental flat to Tom (another landlord), some planning could be done here. You could ensure that Fred leaves all the ageing items behind that he doesn’t want, so that Tom can eventually replace them and get full tax relief.
Similar planning and procedures can be undertaken when you are about to leave and let out your home.
Incorporating your rental property portfolio
This is a complex area and each potential incorporation depends on the specific individual facts and circumstances in point. There will no doubt be SDLT and CGT issues to consider and the appropriate planning will be required.
Individual landlords currently have a lot of tax issues to consider and plan for. Specialised tax advice will no doubt be required. Our tax team at Gravita will be happy to assist you.
Gravita Tax Consultant