With HM Revenue & Customs making changes to tax deductions for rental properties, is it time to sell yours?
Changes in Legislation
Over the past few years there have been a number of changes for landlords and for some this means that they are looking to cash in their investments.
Wear & Tear Allowance
Before 5 April 2016 landlords of furnished properties could claim a 10% wear and tear allowance against their rental profit for the year. Under the new rules landlords can claim the actual costs of replacing furniture, furnishings and kitchenware.
From 5 April 2017 interest on residential mortgages has been restricted. So, by 2020 mortgage interest will not be an allowable deduction on your rental profits.
Capital Gains Tax
If you decide to sell your rental property then you need to be aware of the capital gains tax implications of any profits that you have made.
The information you will need when you come to sell the property are:-
- Original purchase date, amount and any associated costs
- Details of any capital improvements you have made to the property since you have owned it
- Sales date, amount and any associated costs
You will pay capital gains tax on the profit that you making, taking all of the above into account.
If you have lived at the property at any point, then there may be some additional reliefs you can claim, such as PPR and Lettings Relief.
Other Things to Consider
Once you have calculated the profits that are subject to capital gains tax, then you need to look at your individual tax situation. Is the property owned jointly? Have you already used your capital gains tax allowance for the year?
Once you have established this, then you will pay tax on the taxable profit at either 18% or 28% depending on your other income in that tax year.
It is worth noting that if you are a non resident landlord, then you have 30 days to pay any capital gains tax due from the date of conveyancing. Do not wait until you complete your self assessment tax return, otherwise you might incur a penalty and interest.
If you are considering selling your rental property, then it is worth doing some tax planning. We would be happy to help via a consultation. Just drop me an email to book this, firstname.lastname@example.org, the cost is £100 + VAT for 30 minutes.