What's changing tax-wise?

Back in April, we highlighted some of the most recent tax changes that are likely to apply to buy-to-let landlords. As the 31st October self-assessment filing deadline for last tax year approaches, here is a recap of what you need to know for that 2017/18 return and what you need to prepare and budget for in the current tax year.

Tax deadlines

Firstly, so you have the dates in your diary, here are the deadlines you need to know for the next 12 months:

For your 2017/18 return:
5th October 2018 Register online for Self Assessment, if you haven’t already
31st October 2018 Paper tax return filing
31st January 2019 Online tax return filing & payment of any tax owed for 2017/18

For your 2018/19 return:
31st January 2019 1st payment on account for 2018/19
5th April 2019 End of 2018/19 tax year
6th April 2019 Start of 2019/20 tax year
31st July 2019 2nd payment on account for 2018/19

Increase in the personal allowance for 2018/19

The personal allowance has gone up by £350 for this tax year - from £11,500 for your 2017/18 return to £11,850 – so you will only pay tax on earnings above that threshold.

However, if you earn between £100,000 and £123,700, the personal allowance decreases by £1 for every £2 you earn and if your income is above £123,700, you don’t get any personal allowance at all.

The 40% threshold is also going up, from £45,000 in 2017/18 to £46,350 for 2018/19. 45% remains unchanged, applying to earnings over £150,000.

Withdrawal of mortgage interest as an ‘allowable expense’: phase two

On your 2017/18 return, you’ll still be able to claim 75% of your buy to let mortgage interest as a deduction. However, when you file your return for this tax year, only 50% of the mortgage interest amount can be deducted from your rental income, with the remaining 50% subject to tax relief at the basic rate of 20%. Although this won’t necessarily make any bottom-line difference to basic-rate taxpayers, unless it pushes you into the higher rate tax band, if you’re in this 40% or 45% band and have a high level of borrowing, you’ll probably start to feel the effect on your profits when you pay this year’s tax bill.

If you haven’t already calculated the full impact of this tax change, bear in mind:

• Next tax year (2019/20) you’ll only be able to deduct 25% of the mortgage interest from your profits
• From 2020/21, you won’t be able to deduct any of the mortgage interest costs from your profits; instead, the whole amount will be taxed at the basic rate of 20%.

Increase in capital gains exemption amount

If you sell an investment property during this tax year, there’s been a slight increase in the amount of gain (profit) you can receive tax-free. The exemption has risen from £11,300 for your 2017/18 return to £11,700 for 2018/19. Above that, your profits will be liable to capital gains tax at 18% in the standard tax band and 28% in the higher-rate band.

Remember that, to reduce your liability, you are allowed to deduct certain expenses from your gains, including:

• Estate agent’s fees
• Legal fees and costs
• The SDLT paid when you purchased the property
• Costs incurred in increasing the property’s value.

Scotland has new tax bands

The Scottish Government has introduced five different bands for 2018/19: starter, basic, intermediate, higher and top rates. Not only does that makes it much more complicated for landlords in Scotland to calculate their tax liability, it also means that those earning more than £33,000 a year will potentially pay more tax than those on the same earnings in England. Although there’s only a £70 difference for people on £33,000, if you’re earning £200,000, you could end up paying £2,442.50 more tax in Scotland.

Property tax is incredibly complex, especially with the new rules and changes which may come annually in each government budget. If it’s something you are not familiar with, it is worth checking you are paying the right level of tax, so please ensure you speak to a property tax specialist.