COVID-19 Guide for Landlords and Tenants
Measures to support landlords and tenants through these worrying times.
Statutory self-employment pay scheme
General property landlords are unable to claim under the COVID-19 Statutory self-employment pay scheme in respect of lost rental income: rental income is investment income and not trading.
Conversely, Furnished Holiday Letting (FHL) is treated as a trading activity for Income Tax, Corporation Tax and Capital Gains Tax (CGT) purposes. If you are a FHL landlord you may therefore claim for lost earnings under the scheme.
FHLs may well not meet the required occupancy conditions for the 2020/21 tax year, in which case the period of grace rules will provide relief.
Deferral of Income Tax payments
Landlords who pay Income Tax under Self Assessment can delay making their second payment on account for 2019-20, which is usually due by 31 July 2020.
Landlords choosing to delay payment will have up to 31 January 2021 to pay.
CGT: Soft landing on penalties under a new 30-day reporting regime
HMRC have announced that they will not charge any penalties for failure to report Capital Gains on UK residential property within the new 30-day deadline until after July 2020.
Coronavirus Job Retention Scheme
Large landlords may need to lay off some of their maintenance staff or directors during the crisis if social distancing is too difficult to achieve.
Landlords who are employers may claim a grant of up to 80% of the salaries of employees, subject to a cap of £2,500 per month, instead of making them redundant, due to the adverse effects of the coronavirus.
A sole director company landlord may furlough the director in respect of their employment duties.
Ban on evictions
Private or social accommodationLandlords will not be able to start proceedings to evict tenants for at least a five-month period during the current emergency (extended from 3 months on 5/6/2020).
Landlords whose tenants are experiencing financial difficulties due to Coronavirus will receive a six-month mortgage payment holiday (extended from 3 months on 5/6/2020).
At the end of this period, landlords and tenants will be expected to work together to establish an affordable repayment plan, taking into account tenants’ individual circumstances.
Commercial tenantsThe Coronavirus Bill provides that no business will be forced out of their premises if they miss a rent payment in the next five months.
All commercial tenants in England, Wales and Northern Ireland are eligible.
Business taxes: Time to Pay
All businesses and self-employed people in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time To Pay service.
These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities.
It is essential to contact HMRC and make a Time To Pay agreement before the tax debt becomes due.
Empty property and business rates relief
Under the government’s existing rates relief policy, landlords do not have to pay business rates on empty buildings for three months.
The Expanded Retail Discount scheme gives local authorities discretion to allow a business rate holiday to retail, hospitality, leisure and child nursery businesses.
Making Tax Digital for Income Tax
It was originally proposed that this new tax accounting system would commence in April 2020.
It is now postponed until at least 2021. In the meantime, HMRC’s MTD for Income Tax pilot scheme is up and running and this may be an ideal time to try it out and get your systems in place.
Accountancy and tax issues facing landlords have never been more complex. In recent years, investors have seen a steady growth in both property values and rental income whilst enjoying attractive tax relief on financing costs.
However, recent changes to the tax system are now forcing property investors to reconsider how to structure their businesses. Many landlords are moving their properties into a company and purchasing any additions to their portfolio through the same company. This may be the best course of action for some, however, the options need to be evaluated on an individual basis.
From 6 April 2017, individuals have only been allowed to deduct 75% of their borrowing costs, including interest, incurred in running their lettings business. The percentage of disallowed interest will increase by 25% every year until 6 April 2020, from this point onwards all interest paid by an individual landlord will be disallowed. Instead, they will receive a tax credit equivalent to 20% of the disallowed interest to offset against their income tax liability.
How will the changes to tax relief affect you?
Highly geared investors could find they are paying tax on non-existent profits but there are some actions that might be taken to offset this.
For married couples and those in a civil partnership, joint ownership becomes particularly attractive if one of the owners is not fully utilising their personal allowance and basic rate income tax band.
For those already affected, if additional properties are acquired, it might be more tax efficient to buy them in a company.
A number of property investors are taking advantage of the fact that the interest relief restrictions do not apply to furnished holiday lettings. To qualify, properties must be available for letting for at least 210 days and actually let for 105 days but no more than 31 days to the same occupants in a tax year.
How will this affect you if you own the property through a company?
The restriction of the deductibility of finance costs will not apply to corporate landlords. A company can continue to deduct all the interest and finance costs in calculating the taxable profits of its property investment business.
However, a company may find it has to pay a higher rate of interest or have more difficulty securing mortgages on its rental properties. Lenders could insist that the directors of the company provide personal guarantees before advancing loans to the company.
The advantages of investing in property through a limited company largely depend on how long you intend to hold the property for.
If your aim is to eventually leave your property to your children then holding properties in a company could be tax advantageous, especially regarding inheritance tax.
Our aim through comprehensive tax planning is to reduce the impact of the loss of relief and protect your cashflow.
Let Property Campaign
The Let Property Campaign is an opportunity for landlords who owe tax through letting out residential property, in the UK or abroad, to get up to date with their tax affairs in a simple way and take advantage of the best possible terms. If you’re a landlord and you have undisclosed income, you must tell HMRC about any unpaid tax now. You’ll then have 90 days to work out and pay what you owe.
The Let Property Campaign is an opportunity open to all residential property landlords with undisclosed taxes. This includes:
Those that have multiple properties;
Landlords with single rentals;
Specialist landlords with student or workforce rentals;
Renting out a room in your main home for more than the Rent a Room scheme threshold;
Those who live abroad or intend to live abroad for more than 6 months and rent out a property in the UK, as you may still be liable to UK taxes.
We can work out how much tax you owe, the penalties/interest chargeable and complete/submit the relevant HMRC disclosure form.