Property Income Part 2: new and recent changes to property income.

What's new and what’s changed in recent years in the world of property income? When have there been changes to property income? Why have there been changes to property income? Who do the changes to property income effect?

Changes to property income from 6 April 2016:
 

• Rent-a-Room relief raised to £7,500.
• Withdrawal of the 10% Wear and Tear allowance.
• Replacement of Domestic Items Relief introduced (similar to replacement cost basis).
• An additional 3% Stamp Duty Land Tax (SDLT) payable by buyers of investment residential property.

Changes to property income in recent years:

In 2017 HMRC changed their Property Income Manual guidance (and presumably part of their policy) on tax relief on interest when a loan is increased on a property to allow the withdrawal of capital. Their guidance in their Business Income Manual remains unaltered.

Autumn Budget 2017 provided for a change of policy in relation to landlords' motor expenses: 

From 6 April 2017 (Landlords’ motor expenses):
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• Individual landlords and partnerships (excluding Mixed Member Partnerships) are able to use fixed mileage allowances.
• Transitional provisions apply to landlords who had previously used the Extra Statutory Concession.

​Also from 6 April 2017
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• The cash basis become the default method for unincorporated property businesses with receipts under £150,000.
• Taxpayers can elect to use the accruals basis instead.
• A separate decision can be made for each property and trading business of a taxpayer as to whether to apply the cash or accruals basis.
• Joint owners can each pick their own basis unless they are spouses or civil partners who must both adopt the same basis.
• The existing cash basis rules for traders apply with some modifications.
• The cash basis  doesn’t apply to companies, Limited Liability Partnerships (LLPs), partnerships with corporate members, or trusts.

Higher rate relief on mortgage interest restricted for buy-to-let landlords
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• Basic rate tax paying landlords are not immune from these measures: mortgage interest is no longer an allowable deduction from property income and a new adjustment is then required in order to claim basic rate tax relief.

From 6 April 2017, as included in Finance (No 2) Act 2017 individuals receive two new annual tax allowances of £1000

Property allowance
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• Individuals with UK and overseas property income can choose how to allocate the allowance but cannot create a loss.
• The allowance will not apply to income on which Rent-a-Room relief is given.
• The property allowance is not available if an individual receives a tax reduction for non-deductible interest.

From 6 April 2020

COVID-19 measures creating changes to property income: 
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• Although Furnished Holiday Letting (FHL) is specially treated as a trading activity for income tax, any other property letting is classed as an investment activity and landlords cannot claim for lost profits under the COVID-19: Self-employed Income Support Scheme (SEISS).
• HMRC allowed a temporary soft landing on penalties under a new 30-day Capital Gains Tax (CGT) reporting regime.  Capital Gains on UK residential property within the new 30-day deadline until after July 2020.   
• Finance Act 2020 made changes to CGT Private Residence Relief. Lettings relief is restricted and is only available for periods where the owner is in shared occupancy with the tenant.
• The final period exemption is reduced from 18 months to nine months. It will remain 36 months for those cases that currently qualify for the extended period.

Recent changes to property income:

From 6 April 2021

• Finance Act 2021 introduced an extended trade loss relief carry-back for income tax and corporation tax, this does not apply to rental business or FHL.
• Finance Act 2021 also made changes to SDLT (Stamp Duty Land Tax) & ATED (Annual Tax on Enveloped Dwellings)

Upcoming changes to property income: 

From 6 April 2024

• Self-employed businesses and landlords with business turnover above £10,000 must report under Making Tax Digital (MTD) for Income Tax.
• HMRC is testing the system with a MTD Income Tax Pilot.
• Corporation tax rates increase to 25% for profits over £250,000.

If you want to learn more about Making Tax Digital... click here to read an article from gov.uk or follow me on Facebook and Twitter and I will keep you updated with everything as it happens.