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There are significant changes arising to the taxation of properties for individuals. These changes are outlined below:-
Principal Private Residence (PPR) Relief
Position pre 6th April 2020
PPR relief is available for individuals selling a property that they have lived in as their main home. PPR relief exempts all or part of the capital gain subject to taxation made in respect of periods of actual occupation.
The rules stated that if the individual had occupied the property as their main residence at some stage of ownership, then the final 18 months of ownership qualified for relief from capital gains tax even if they had not lived in the property.
Change from 6th April 2020
The final deemed occupation period for PPR relief has been reduced from 18 months to 9 months.
Lettings Relief
Position pre 6th April 2020
There was a separate relief available to owners relating to periods where the property was let out, and the owner was not in occupation or within deemed occupation. This relief was available in addition to PPR. Gains arising in the lettings period were reduced by up to a maximum £40,000.
Changes from 6th April 2020
Lettings relief is no longer available unless the property is in shared occupation (e.g. renting a room in their home).
Buy-to-let Mortgage Loan Interest
In the tax year ended 5 April 2021, there will be no deduction allowed for mortgage interest and related finance costs. You will only get 20% tax relief for the cost against any taxes due. Individuals who pay tax at the higher (40%) or additional rate (45%) tax will not benefit from an additional relief of effectively 20% (higher rate taxpayers) or 25% (additional rate taxpayers).
Companies are not subject to the above restriction and will continue to fully deduct the mortgage interest or finance costs from profits.
Capital Gains Tax (CGT)
Residents
Pre 6 April 2020: When a CGT liability had arisen on the disposal of a UK residential property, it was reported via their self-assessment tax return and paid by 31 January following the end of the tax year in which the disposal was made.
Post April 2020: A CGT return stating the residential property gain will need to be submitted and any tax paid over to HMRC within 30 days of completion. The gain would still be reported on the tax return and adjustments can be made at this point.
In the event where there is a capital loss, a submission is not required.
The CGT return only applies to disposals by UK residents of UK residential property. Other disposals are reported on the tax return relating to the relevant tax year.
Non-residents
Non-residents realising chargeable gains are taxed in this manner:
- Non-resident companies realising capital gains on UK land and property are required to complete corporation tax returns and which will be taxed through these returns at the rate of 19%.
- Non-resident individuals disposing of UK property or land (residential or commercial) will be subject to the same filing and payment rules as UK resident individuals above.
