2020/21 Tax Rates and Allowances
This page contains all of the personal income tax changes which were published on the gov.uk site on Fri 28 Feb 2020. These rates come into effect at the start of the new tax year, on April 6th 2020.
This Guide was produced by Michael Wright, Landlord Tax Expert at Rita4Rent, who are specialist landlord tax advisors, and the sole recommended tax advisors of the Residential Landlords Association. Michael now writes for Listentotaxman.com on matters relating to property and landlord tax. Rita4Rent are very happy to speak with Listentotaxman visitors to discuss any tax questions they might have – just visit the Rita4Rent website for contact details.
Given the current situation with COVID-19, some landlords may end up with losses for the first time. The different tax losses have different rules attached to them. Understanding the technicalities of the loss rules can help you to plan your taxes more effectively.
Standard Rental Income Losses
Standard rental income losses can only be set off against future profits of the same type of rental income. These losses can’t be set off against general income apart from in very rare circumstances where the loss is attributable to certain capital allowances or agricultural expenses. This would be exceedingly rare in practice.
When we say the same “type” of rental income, we mean that UK property income losses can only be brought forward against UK property income profits. Overseas property income losses cannot be set off against UK property income profits and vice versa.
These types of losses are automatically brought forward and, unlike many other types of tax losses, do not require a specific claim. The losses must be used against the first available rental profits in future tax years. If you do not have other sources of income, this can waste your personal allowance.
The losses last until the end of the rental business. This normally occurs where the last rental property, in that type of rental business, ceases to be let out, and you do not intend to re-let the property. If you have a few months where you are looking for a new tenant for example, the rental business would still be treated as ongoing as you are still seeking a tenant. If you still hold a rental property at the point of death, this would also be treated as an end to the rental business. Unfortunately, there is no scope to pass losses on to anyone else (even where the property is inherited).
Unused Non-Deductible Finance Costs
As of 6th April 2020, mortgage interest is no longer a deductible expense after a phase in period of the new Section 24 rules since 6th April 2017. Instead of the mortgage interest being a deductible expense, this has been replaced with a 20% tax deduction. However, the crucial thing to understand is that full relief cannot always be given in the same tax year.
The full relief that is available is 20% multiplied by the mortgage interest. However, this cannot exceed 20% of the property income business profits or 20% of the total income in excess of the personal allowance.
For example, a landlord has net rental income of £15,000 and incurs mortgage interest that is no longer deductible of £5,000. The landlord has no other income. The personal allowance is £12,500 which leaves taxable income of £2,500. The tax before the mortgage interest is £2,500 X 20% which is £500. The relief for the full mortgage is £5,000 X 20% = £1,000. But only half of this can be used this tax year. Therefore, similar to losses, the remaining £2,500 worth of non-deductible finance costs (giving £500 tax relief) is carried forward into the next tax year.
As the other restriction to the amount of tax relief that can be given is 20% X total property profits, this means if you have made a loss in the tax year, you would not be able to utilise any non-deductible finance costs in the same tax year and the full amount would be brought forward.
This only applies to standard residential property as mortgage interest is still deductible from commercial or furnished holiday let property.
Furnished Holiday Let Losses
The mechanics of Furnished Holiday Let property losses are quite similar to normal property income now, in that losses are automatic and last until the cessation of the rental business.
However, they are more restrictive as the losses can only set off against Furnished Holiday Let losses, unlike standard UK property losses that can be set off against both UK standard property losses and Furnished Holiday Let losses.
One of the criteria to meet for a Furnished Holiday Let is that it must be in the EEA. Similar to standard losses, you cannot offset EEA losses against UK Furnished Holiday Let income.
Capital Losses
Capital losses are incurred where the purchase costs of a property along plus other capital expenditure, is higher than the sales proceeds received before any expenses are deducted. If a capital loss is made, it is first automatically set off against any capital gains in the same year. After that, any unused losses can then be carried forward to set off against any future capital gains. These capital gains can be from any chargeable asset and does not necessarily need to be other residential properties.
However, capital losses are not automatically carried forward and require a claim to be made. The time limit is 4 years from the end of the tax year that you made the loss. Once the loss is claimed, it is available for life until used.
The losses brought forward are only used up after the annual exemption in future years. This is different to rental income losses that can waste the personal allowance where other income does not utilise it.
There is a very limited circumstance where the capital loss can be carried back. This is only available on the death of the taxpayer. The capital loss, in excess of any gains made in the tax year of death, can be set off against any capital gain made in the previous three years on a last in first out basis. In this scenario, this would normally result in a refund for the deceased taxpayer’s estate.
This Guide was produced by Michael Wright, Landlord Tax Expert at Rita4Rent, who are specialist landlord tax advisors, and the sole recommended tax advisors of the Residential Landlords Association. Michael now writes for Listentotaxman.com on matters relating to property and landlord tax. Rita4Rent are very happy to speak with Listentotaxman visitors to discuss any tax questions they might have – just visit the Rita4Rent website for contact details.
Personal Tax
2019/2020 Tax Rates and Allowances
This page contains all of the personal income tax changes which were announced at the October 29th, 2018 Budget. These rates come into effect at the start of the new tax year, on April 6th 2019.
2018/2019 Tax Rates and Allowances
We have published a quick reference to the significant changes to the tax rates and bands, personal tax allowances and national insurance figures which come into effect from April 6th 2018.