Here's are five insights into the tax trends of the moment that may affect your landlords.
Keeping on top of tax obligations is key for landlords that want to stay on the right side of HMRC. Letting agents can be on hand to help them understand what's required as well as keep them in the know about what may be on the horizon. Here's a breakdown of some of the key trends and insights of the moment.
1. Property portal to be a potential boon for HMRC
Law firm Kingsley Napley has shared that the new property portal as part of the reforms under the Renters (Reform) Bill could be used by HMRC to help identify errors in tax entries.
This includes those that are simply "innocent mistakes" and those that are deliberately made by rogue landlords.
BDO expands on this, sharing that HMRC could take data from the new portal and combine it with the information it can already access through the Land Registry for analysis.
2. Capital gains tax threshold changed in April 2023
When landlords choose to sell up, they should follow capital gains tax rules - and these have changed since April 2023. The capital gains tax threshold has now fallen to £6,000, from £12,300. This means that any profits above £6,000 made on the sale of their property will now be subject to capital gains tax.
There's another step in the process that landlords must be aware of, as highlighted by Rick Schofield from Azets. Since 2021, landlords have needed to register the sale of their property for capital gains tax with HMRC within 60 days - or risk a fine.
3. Submit self-assessment tax returns early, says HMRC
HMRC recently shared that landlords can submit their self assessment tax returns for the 2022-2023 tax year at any time after 6 April 2023.
HMRC says that the payment date of 31 January stays the same, even if it's submitted early, and it can help landlords understand what they'll owe at the end of the year, to budget more easily.
4. Rent deposit data is helping HMRC with enforcement
HMRC is already using data from deposit schemes to check the tax that should be declared on tax returns. That data's also helping HMRC discover if any landlords aren't declaring rents.
Some landlords may even start to receive letters asking them to clarify their tax position. Those that receive a letter should reply within the time frame outlined - or risk HMRC opening a formal enquiry.
John McCaffery, Tax Partner at Alexander & Co, recommends that: "all landlords review their gross rents and check the correct amount of tax has been declared. Anyone receiving a letter from HMRC should reply to it within the given time limit and seek professional advice if they are unsure of how to respond."
5. Tax relief and housing supply in the rental sector
New research has added extra weight to the calls for tax relief for landlords to be reinstated. Capital Economics has found that, if the base interest rate hits 5% and stays above 2.5% until 2027, over 700,000 private rented properties could leave the market.
However, the consultancy says that reinstating the mortgage interest relief under section 24 would help keep 110,000 properties in the market.
Ben Beadle, Chief Executive of the National Residential Landlords Association, says: “Tax hikes on landlords, exacerbated by rising interest rates, have deepened the supply crisis. And as this research demonstrates the situation is unlikely to improve until and unless it is reversed."
This echoes the sentiment of landlords and agents surveyed in Goodlord's Renting Done Right report, which found that 37% of letting agents thought that reinstating tax relief should be the government’s top priority, and 29% of landlords agreed.
