Landlords: do you know your tax liability?
If you’re a landlord, do you know how much tax you should be paying and how it is calculated? There have been changes to both mortgage interest relief and capital gains tax in the last year but according to a report in the press today, there’s a widespread lack of knowledge among landlords out there. Anyone who uses an accountant to prepare their tax assessment can rely on their expertise but if you let out a single property or a very small portfolio and complete your own tax forms, it is vital to understand how the rules apply to you.
Landlord Today has revealed the results of a recent survey on tax liability carried out by a mortage company. Tthe results don’t bode well. With self-assessment income tax payments due in a couple of weeks, the poll found that one in six landlords doesn’t realise that this will be the last time mortgage expenses can be deducted from rental income. And only four in ten of the landlords they spoke to knew about the upcoming changes to Capital Gains Tax which we blogged about in December.
The rules governing landlords’ tax deductions changed in April 2017, with mortgage interest relief gradually phased out in the last three years. With effect from the 2020-21 financial year, landlords will receive a tax-credit instead which is based on 20% of their mortgage interest payments.
When it comes to CGT, anyone making a profit from the sale of a property that isn’t their main home now has to inform HMRC - you can use their on-line service to do this - and pay any tax due within 30 days of completion. But according to Landlord Today “more than a third of landlords still thought they could put off declaring and paying CGT until their next tax return. One in 10 thought they had six months within which to settle”.
This year, HMRC is giving people making self-assessment payments some leeway. It is allowing payment in instalments and accepting late payment in certain cases if you have a valid Covid-related reason for missing the deadline. But as ever, ignorance of the law is no excuse and the tax office is likely to take a dim view of anyone missing a payment because they didn’t know the rules had changed.
Fines for late payment soon add up. So talk to your accountant or speak to your local tax office if you need advice – and make sure you pay what is owed on time.
Author : Maryanne Bowring
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