Year end tax planning for UK property owners
28 Feb 2020
As we look ahead to the start of the new tax year, UK property owners should be considering now what action they can take to reduce their tax charge for the year, as well as some actions that will need to be considered as part of the annual compliance cycle. There are also some tax changes coming in from April 2020, and this article touches on these briefly.
If you own an unincorporated property business with turnover of up to £150,000, taxable profits will need to be calculated on the cash basis by default. If you wish to use the accruals basis for 2019-20, you will need to elect to do, although this does not need to be considered until 31 January 2022.
If your business made any losses in the year, ensure these are claimed so they can be carried forward and offset against future profits from the same rental business.
If you let a furnished room in your home to a lodger, you can claim Rent a Room relief of up to £7,500. If your gross rental income exceeds this amount, you can calculate whether it is more tax efficient for the excess to be charged to tax, or for you to pay tax on your rental profits after deduction of expenses in the usual way.
Furnished Holiday Lets
If you own a Furnished Holiday Let (FHL) property that was not let for the requisite 105 days in 2019-20, you may still be able to secure the tax reliefs available by electing for a ‘grace period’ to apply. Alternatively, you could consider making an averaging election where you have more than one qualifying property and one property does not meet the occupancy test of 105 days on its own. Where the average occupancy of all the FHL properties is above 105 days, all properties will qualify.
If you have incurred capital expenditure on your FHL during the year, check whether it qualifies for the Annual Investment Allowance to accelerate tax relief.
Annual Tax on Enveloped Dwellings
The ATED regime applies to UK residential property worth over £500,000 held by companies. Those within the rules may be subject to the annual ATED charge based on the value of their property. There are a number of reliefs that can apply to reduce an ATED charge, and these need to be considered on a case-by-case basis.
ATED returns for 2019-20 are due by 30 April 2020. The charges for this year are yet to be confirmed, but are expected to be released at the 2020 Budget on 11 March.
Capital gains tax – 30-day payment and reporting window
From 6 April 2020, where a UK-resident individual or trustees make a disposal of UK residential property on which capital gains tax is due, then the capital gains tax will need to be reported and paid within 30 days of the completion of the transaction. This will mainly affect those selling second homes or rental properties, as disposals covered by Private Residence Relief will not need to be reported.
Those planning to dispose of property in the next few months may wish to accelerate these disposals ahead of 5 April 2020, as this will remove the need to file the standalone return, and will extend the capital gains tax payment date.
Private Residence Relief
From April 2020, some changes to the Private Residence Relief rules, which can reduce the gain on the sale of your main home to nil, are coming into force. The first key change is to the period of deemed owner occupation at the end of ownership eligible for the final period exemption, which will be reduced from eighteen months to nine in most cases.
Additionally, lettings relief is being reformed. The relief, which used to be available when a main residence was let out, will now only be available where the property owner lives in shared occupation with the tenant.
If you are considering the disposal of a property in the short-term and plan to take advantage of any of these additional reliefs, you may wish to consider accelerating the disposal ahead of April 2020 if possible.
For more information on any of these topics, please contact your usual Saffery Champness partner.