It’s the time of year that every self-employed person dreads – the end of the financial year and the time to calculate and pay your taxes. Landlords need to be especially careful this year when it comes to paying the right amount of tax as the HMRC have said that they are planning on cracking down on all buy-to-let landlords that do not declare all the money they receive in rent payments. Therefore, the Landlord Syndicate is now offering advice to all landlords so that they can keep on top of their finances and pay their taxes quickly and easily.
Amer Siddiq, member of the Landlord Syndicate and managing director of Tax Insider, advised: “If you haven’t done so already, the first thing you need to do is register for self-assessment. If you have been disorganised and not kept on top of what has been coming in and what has been going out over the last year, it would be a good idea to make a start now.” Mr Siddiq went on to say that landlords need to be aware that there are certain things that they can deduct from their rental income, so by keeping all your documentation in order you could end up saving yourself money.
For example, you are allowed to deduct the interest payments on your property’s mortgages, as well as other additional costs such as the cost of phone calls, landlord insurance, and travel costs to the property for inspections. Mr Siddiq went on to say: “There are important steps landlords can take as we enter the new financial year to ensure that next year’s tax return is an easier process. If you really want to make life easier, ensuring good record keeping is key. Keep all receipts not matter how small, they all add up. Most importantly, set up a separate bank account so you can track what is going in and what is going out via your bank statements.”
Keeping on top of all your credits and debits may sound difficult at first, but if you set up a system you will soon find that it comes naturally. In the long-term, keeping all your financial documents organised and safe could also save you time and money, and will ensure that you don’t end up being charged by the HMRC for not paying the correct amount in tax.
It has been reported that homeowners whose properties have over 1.23 acres of land will soon have to face paying 28 per cent levy on gains on the sale of a home. The new plans are being called a ‘garden tax’ and is threatening to upset the long-held belief by many of those living in the UK that the profit of the sales from one’s main home are exempt from tax.
This new stance by tax authorities, whom revive the enforcement of rules on the statute book since the nineteen sixties, have claimed that the tax will affect those who have gardens that are over half a hectare in size, unless they can be shown to be “required for the reasonable enjoyment of the house as a residence.” However, it is feared that the government is moving towards a cap on tax-free gains similar to that in America, where only £250,000 of any profit is exempt, and furthermore the owners of the property will have to prove they have lived there for at least two years.
Her Majesty’s Revenue and Customs (HMRC) has already reported that the number of enquiries concerning tax payments on gardens has gone up from a couple a year to three a month. However, they also denied that it had “launched a campaign to look at private residence relief”, but confirmed that they were checking on transactions using a computer programme called Connect. This programme enables the HMRC to cross-check stamp duty records paid by homebuyers with capital gains tax declarations by sellers. In an interview to the Gary Heynes, tax partner at Baker Tilly, stated that “Our clients have to demonstrate the grounds they are claiming for are an integral part of the property with no hedges or streams that separate them for the residence.”
It will be important for anyone who is planning to sell property that has been previously to let to also consider the impact of capital tax gains, and if there is any uncertainty to contact their landlord insurance provider.
A UK investigative website that specialises in exposing tax loopholes used by the wealthier echelons of society believes buy-to-let landlords are avoiding up to £2 billion of tax each year by swapping mortgage loans from their own homes to those they are letting out to tenants.
Exaro claim that the tax bonus enjoyed by buy-to-let investors is roughly the same amount the Government intends to whittle away from Housing Benefit claimants and accuse millionaire property owners of using the tax loophole to avoid paying taxes. Their claims are supported by campaign group Priced Out whose spokesman said property investors are pushing first time buyers to one side when it comes to buying residential homes and are probably pushing up house prices, explaining “Buy-to-let investors are competing with first time buyers for the same properties and have more buying power. It would be remarkable if buy-to-let has not had an upward or supporting pressure on house prices.”
It is certainly true that buy-to-let mortgages now account for 1 in 5 arranged mortgages in the UK today when just five years ago they accounted for just 1 in 25. Property investors should have no qualms about giving landlord insurance providers more business in the future as a spokesman for Her Majesty’s Revenue and Customs said they had no intentions of stopping property investors claiming their rightful tax allowances, asserting “There is no such thing as a buy-to-let tax break; it is simply a business cost which is a claim against tax the same as any other business.”
It is a statement that most landlords would agree with, after all not many can claim to be in the millionaire bracket and the great majority of landlords in the UK own no more than three properties.
Second homeowners and private landlords who do not rent out their empty properties are to be hit with council tax increases as ministers move to end the madness of the system that encourages leaving properties empty.
The Government are about to announce their plan to abolish discounts on holiday homes that are only used at the weekend and they will also impose an extra premium on any home that is left empty for more than two years. The coalition feels that it is wrong for there to be around a million empty homes in the United Kingdom with 730,000 of these in England alone. It is estimated that bringing the homes back into use could half the number of people waiting on council housing lists across the country. The Government would like private landlords to forget about empty home insurance and instead install tenants and cover their properties with landlord insurance. Andrew Stunell, the Lib Dem communities minister, will confirm the plans to stop councils giving discounts and he will also push ahead with the empty homes premium.
Mr Stunell said: “We’ve lived with the scourge of empty homes for too long. They’re a blight on our communities and a waste of much-needed housing. It’s madness that councils have been forced to offer discounts on empty and second homes, which don’t take into account local circumstances and provide an incentive to leave homes vacant indefinitely.”
The Lib Dems have for some time been pushing for a clampdown on second homeowners after arguing some parts of the country have become ghosts towns during the winter when properties stand empty. Cornwall is one of the biggest losers through discounts offered to second homeowners as they miss out on more than £2m yearly. However, there are concerns that, with councils facing cuts of up to 10% in their funding, those areas without large numbers of second homes or empty properties will be forced to find savings elsewhere.
It appears that residential landlords may be one of the first victims of the stringent measures the new Conservative Liberal Coalition Government are looking to put in place. It is widely anticipated that a hike in capital gains tax will be implemented in the June budget to pay for the Governments plan to higher the tax entry threshold. Pundits are expecting the level on capital gains to go from the present 18% to possibly as much as 40%, and although the rise in the rate is expected to be tempered by introducing certain allowances residential landlords and second home owners will feel the full weight of the new tax level.
The National Landlords Association has requested the Government view buy to let landlords as businesses or entrepreneurs which would see them exempt from the new rate, with the chairman of the organisation David Salisbury saying “We are concerned that a tax increase of this nature will act as a barrier to further investment in residential property just at a time when there is an urgent need for more housing,
“There should be further consultation with the industry before drastic changes are made”
Historically, before the Labour Government introduced the flat rate of capital gains tax, landlords who stayed in the private rental sector for long periods saw their rate of capital gains tax lowered from 40% down to 24% as a means of encouragement, the fear now is that the new Government will not recognise this which could result in many buy to let investors will selling properties before the new rates become a reality. For those that choose to stay in the sector achieving savings by seeking out cheap landlord insurance will become more important than ever.