Accidental landlords between a rock and a hard place

Deduction of mortgage interest

Landlords will have started to notice the impact on their finances from the phasing out of mortgage interest relief. That will be felt more and more over the next couple of tax years as the restriction is increased. For the tax year 2018/19 it is restricted to 50%

How this works in practice has been covered many times now, but if you need more advice please feel free to contact us.

So where now?

Some landlords have been crunching the numbers to decide whether it is worth them incorporating. That is not an easy decision to make and has many of it’s own tax implications. Make sure you liaise with a suitably qualified tax advisor when pursuing this route.

Other landlords may be thinking about selling as their return is reducing. In general any chargeable gains on the sale of a residential property are subject to capital gains tax 18% or 28% depending on your tax rate.

Are you an Accidental Landlord?

The effects of the phasing out of mortgage interest relief may be persuading accidental landlords to sell up and some have. For those who are still contemplating it they need to be aware of some future tax changes.

Principal Private Residence relief

At the moment the last 18 months of ownership of a property you lived in is free from capital gains tax, even if you have moved out (although some calculations are far from straight forward). However for sales after 5th April 2020 that is reduced to 9 months (unless you are moving into a care home or are disabled).

That is an increase in your tax liability, right there, if you have moved out of your home more than 9 months ago. Add onto that the proposed changes to letting relief and you could find yourself facing a bigger capital gains tax charge than you expected.

Lettings Relief

For those who decided to let their old home out, when they bought a new one or moved in with a loved one, there is a bigger potential change that may be brought in which they need to keep an eye on.

Lettings relief at the moment can exempt upto £40,000 of chargeable gain for someone who sells a home that was their main residence before it was let out. A couple with a jointly owned property may benefit from upto £80,000 of relief. Depending on how the proposal is actually written in the final legislation, most people in that position will find that the gain relating to their letting period will be mainly taxed.

Bank it!

At the moment it is not legislation and there is likely to be a consultation period this year. If it looks like it will become law (and let’s face it landlords keep getting hit by tax changes) accidental landlords may want to consider their next move before it is too late. There may be ways to bank that relief now.

If you would like to discuss this or any other tax issue, please do not hesitate to contact us.