Date
28 Jul 2023Category
Tax, Private Client ServicesLandlords, as well as many UK businesses, have been caught off guard by the Bank of England’s (BoE) consecutive interest rate rises, which have gone up at the fastest pace in a generation and are now at a 15-year high.
June’s base rate increase to 5% represents a level last seen during the global financial crash in 2008. This is in stark contrast to the all-time low of 0.1% during the pandemic and firmly showcases the end of the era of cheap debt.
Despite the high interest rate level, it is widely predicted that it won’t end there. Inflation continues to be stubborn, so BoE hikes are continually seen as a route to get it under control.
Mortgages are directly impacted by any BoE increase and landlords are certainly one of those feeling the pinch. Higher mortgage debt that isn’t covered by rent is leading to a wave of property disposals from investors looking to cash in before the repossession nightmare becomes a reality.
There is a legal requirement to report the disposal of UK residential property to HMRC within 60 days of the completion of the sale (provided this took place on or after 27 October 2021); and the payment of Capital Gains Tax (CGT) due will also be due within this 60 day window. The CGT return shouldn’t be confused with annual self-assessment tax returns.
From our experience, a number of exiting landlords don’t realise there is a requirement to submit a CGT return to HMRC, meaning they are at risk of financial punishment via penalties.
Failure to file the return within the appopriate time limit will result in a late filing penalty of a £100 with further penalties being charged if the return is outstanding after 3, 6 or 12 months. In addition, interest will be charged on late payment of CGT due.
The process is not straightforward for landlords to report the capital gains on properties sold; they have to have their own government gateway account before a CGT account can be created. This is not something that advisors are able to action on their behalf. However, Azets can assist by guiding you through the process, and once the initial steps have been dealt with to create a CGT account, we can calculate the CGT and prepare and submit the CGT return.
Prior to 6 April 2017, landlords were able to deduct certain finance costs, including mortage interest from their rental income, as a means of reducing their net rental income and therefore their income tax liability. This was replaced with relief at basic rate (20%) on the lowest of:
Following recent reports that the Prime Minister is looking at implementing a 2p tax cut before the next election, and given the desire he expressed to cut the basic rate of income tax when he was Chancellor, it could be assumed that the cut would be on that basic rate. If this reduction were to happen, landlords could face further rises to their tax bill as their relief would be cut to match.
While this is largely speculation at this stage, it’s important that landlords take any necessary steps to ensure they’re financially viable and properly managing any tax requirements.
If you have any questions in relation to the filing requirements on disposing of UK rental property or would like to discuss your specific tax liabilities, please get in touch with a member of our specialist team or your usual Azets advisor.
Information correct at time of publishing, but may be subject to change in future. This article is for general information only and is not intended to be advice to any specific person. You are recommended to seek professional advice before taking or refraining from taking action on the basis of the contents of this article.
