The important thing tax changes for buy-to-let landlords in 2021-21
Landlords face more taxation alterations in the brand new tax year, with the phasing out of mortgage interest tax relief reaching its final stage and capital gains tax having a series of tweaks.
The new rules entering force at the beginning of the brand new tax year have been on their method for some time, but they will have a significant effect around the tax burdens facing property investors.
Here, Which? explains the alterations landlords have to be aware of once we go into the 2021-21 tax year.
Mortgage interest tax relief changes
From 2021-21, landlords are only able to offset 20% of their mortgage charges when filing their tax returns.
The change marks the final chapter in the government’s tapering from mortgage interest tax relief, a procedure that’s been underway since 2021.
The policy has been very unpopular with landlords since its inception, and lots of investors have cited significantly higher tax bills like a primary reason to reduce their portfolios or sell up entirely.
You will discover much more about how the changes may affect you in our full guide on mortgage interest tax relief.
Capital gains tax
The 2021-21 tax year also brings a substantial switch to how capital gains tax (CGT) is paid.
You’ll usually have to pay CGT if one makes a profit when selling an investment property, but how much you’ll pay depends upon how big the profit and your financial circumstances.
Until now, landlords have been able to declare any CGT liabilities in their next annual tax return, potentially providing them with well over a year to pay for the bill.
Now, however, landlords must declare and pay any CGT liabilities while using government’s new online service within 30 days of selling the home.
You can find out more about CGT rates and calculations within our full guide on capital gains tax on property.
Reduction of capital gains tax relief
The government can also be tweaking the guidelines around private residence relief and letting relief on CGT bills.
These two deductibles are just open to landlords who once lived within the investment property themselves, so that they won’t affect a large proportion of buy-to-let landlords.
Private residence relief
If you once lived inside your investment property, you wouldn’t have to pay CGT for the years you lived there when you come to sell.
Under the current rules, you’ll be also exempt from CGT for that final 18 months you owned the home, even if you didn’t live there yourself.
But in the 2021-21 tax year, the 18 month period is going to be cut to nine months.
Landlords could also benefit from CGT relief as high as lb40,000 when selling a good investment property that was once their house – even if they hadn’t lived in it for several years.
Under the brand new rules, however, investors will need to reside in the home themselves once they arrived at market it.
This change effectively removes letting relief like a deductible for the vast majority of landlords when filing their CGT returns.
When should i file my taxes?
The changes we’ve described above enter into force for that 2021-21 tax year, that the self-assessment taxes deadline is 31 January 2022.
The next tax return you’ll file will be for the 2021-20 tax year. The deadline for paper returns is 31 October 2021 and for online returns, it’s 31 January 2021.
Can I deduct expenses when filing my return?
While a few of these changes could improve your tax burden, it’s not all doom and gloom.
There are still lots of costs you are able to offset when filing your return, for example estate agent fees, maintenance costs, rates and landlord insurance.
You can find out more about deductibles in our full guide on allowable expenses for landlords.
Help for landlords during the coronavirus outbreak
It’s a tricky time to be considered a landlord, and the outbreak of coronavirus has brought about new challenges.
Landlords whose tenants face financial hardship can apply for any three-month mortgage payment holiday. The federal government says this break ought to be passed on to tenants in the form of rent deferrals, which both sides should then interact to arrange a repayment plan for just about any arrears.
If you were thinking of growing or cutting down your portfolio this year, that as well may have been impacted by the outbreak.
But using the property market essentially on hold, now's a good time to assess your options and consider your long-term strategy.