‘Accidental landlords’ face major tax headache

25 Mar 2020

white town house

All eyes are currently on Coronavirus and the economic measures introduced by the Chancellor to mitigate its impact on peoples’ finances. Yet there are significant changes to the tax regime for landlords coming into force in April which will continue regardless of the government’s current measures.

Zena Hanks, a partner at Saffery, comments on how the changes will affect people who never intended on being landlords.  

On 6 April this year, changes to the tax regime for landlords, some of which were first outlined in 2015, are set to take full effect. 

Buy-to-let mortgage relief ending

Prior to April 2017, finance costs paid on a buy-to-let mortgage were fully eligible for tax relief. Following changes introduced in 2017, tax relief for finance costs has been gradually phased out and this April will see the relief fully replaced with a 20% tax credit. This can adversely affect the profitability of many rental properties.

The Chancellor has introduced a three-month mortgage payment holiday to help households cope with the economic pressures of Coronavirus. This will extend to buy-to-let mortgages, allowing landlords three months where they do not have to make the payments on their mortgage. The purpose is to ease the financial burden on landlords so as to help them accommodate tenants who cannot afford their rent payments. 

Capital gains tax deadline

As of 6 April 2020, the timescale for paying capital gains tax (CGT) will be vastly altered. People who sell a residential property will have 30 days from the date of completion to make a provisional calculation of the gain, file this with HMRC, and pay the tax that is due. Currently, taxpayers could have up to 21 months to pay their CGT tax bill, which is reported on the individual’s self-assessment tax return.

Principal Private Residence (PPR) Relief

PPR is a relief used by home owners selling a property which has been their main residence. Prior to 6 April 2014, the final 36 months of ownership were treated as a period of deemed occupation and therefore would be tax exempt – this is irrespective of how the property is used in those final 36 months. Currently, the last 18 months are exempt from CGT. As of April, this will reduce to just nine months. In practice, this significantly reduces the grace period provided to homeowners who may, for justifiable reasons, have moved into a new home before being able sell their existing one. 

Lettings relief ending

Lettings relief is a relief on CGT and currently applies to landlords who are selling a property that was at one point their main residence and as such qualified for PPR relief and has also been let out for a period of time. The relief was designed to encourage individuals who have moved up the property ladder to rent out their previous unoccupied property, or to rent out unoccupied rooms in occupied properties. The relief can provide an individual up to £40,000 of exemption from CGT on disposal, or £80,000 for a couple.

As of 6 April 2020, this relief will only be applied to individual property owners who are sharing the occupancy with the tenant. Going forward, the relief will only apply to those who let out unoccupied rooms in their own principal residence.


Zena Hanks, partner in the Private Wealth team at Saffery, comments: 

Accidental Landlords:

“In this era of debate over what exactly an equitable tax system looks like, and how much different sections of society should pay in tax, it seems that there is a continued focus on landlords to shoulder an ever-greater proportion. 

Some would say that it comes with the territory given the rapidly rising cost of rent in key cities and regions, but this however ignores the growing numbers of individuals who never intended to become landlords. They may have bought a new house and found they were unable to immediately sell the old one. Sometimes the only affordable solution is to rent just to keep afloat. 

In many ways these so-called accidental landlords play a key role in the availability of rental accommodation – which in turn helps support labour mobility by providing, for example, easy-access temporary accommodation for students & professionals.

The looming tax changes in April are indiscriminate of the scale of a landlord’s portfolio, so may herald a new era unfair on those who have found themselves to be landlords not through a desire to be a property magnate but by a need to make ends meet.”

 Mortgage Interest relief:

“Once the deduction for finance costs is fully replaced with a 20% tax credit on 6 April, those landlords with large mortgages will face significantly higher income tax bills. If they have a variable rate mortgage with the recent decrease in interest rates, moving forward the mortgage interest costs will reduce, as will the 20% tax credit, but that won’t help the tax liability that will be due for the 2019-20 tax year. 

Many landlords may have been relieved to hear the chancellor’s plans for extending the so-called mortgage payment holiday to buy-to-let mortgages, however they should not let this holiday lure them into a false sense of security. All holidays must end, and when the three months is over, and assuming it’s not extended any further, landlords may find the tax bills on their rental profits significantly higher than they were in 2019-20 as the 6 April changes begin to bite. 

With the interest rate currently at a historic low of 0.1%, many landlords with a variable rate mortgage may not initially notice much of a dent in their finances from the change to the mechanics of the tax relief.

Much like the mortgage payment holiday, we can be sure that this unprecedentedly low interest rate will not last, so landlords should look to pay their mortgage bills sooner rather than later to fully utilise this period where the cost of borrowing, even for a buy-to-let mortgage, is almost zero.”

Capital gains tax changes:

“From April the capital gains tax (CGT) system will be turned on its head – a tax return must be filed and CGT paid within a 30-day window. Sellers will have to ensure they are able to calculate the accurate capital gains position to determine the CGT that will be due much quicker than previously. In addition, they may not have details of the acquisition costs of the property, or if there are capital losses that could be available to set against the capital gain.  

Many landlords sell a property when they have a need for cash in the bank, either for private or business purposes, such as paying a hefty tax bill, or to pay for vital repair work on a property damaged by flood or fire. Narrowing the window for tax payment may well scupper the plans of landlords looking to reinvest the gain in another buy-to-let property of a similar value, for example.” 

Principal Private Residence (PPR) Relief:

“Many accidental landlords rely heavily on PPR relief, helping them with the tax impact that would otherwise come from struggling to sell a home while moving into a new one. Until only a few years ago a 36-month window was provided. Landlords now have 18 months for which they can claim relief and, as this halves again in April, landlords will have an additional nine months of capital gain added to their tax bill – a tax bill which must be calculated, filed and paid within 30 days. 

Selling a property within nine months is frequently a tall order and accidental landlords will feel the pinch as a result.”

Lettings Relief

“This reform seems to be motivated by the principle that people who rent out spare rooms in their only residence should have a tax break. But as we know, those who rent out second homes are not always hard-nosed real estate professionals with large property portfolios. Accidental landlords are in a similar position as those who decide to rent out a spare room in their house; they need the income. For the moment, they are treated the same under the current tax regime. But come April, many individuals who simply can’t sell their homes may, in the eyes of HMRC, be deemed veritable property tycoons and taxed as such.”


“This is a uniquely challenging time and every aspect of society is being asked to do their part to ensure the safety of the British people and to allow the economy to keep on running. Landlords have an important role to play in assuring tenants who cannot afford their rent payments that they can remain in their properties, as the government has instructed.

Given the circumstances, this is a difficult time for HMRC to crack down on landlords, with tax hikes coming at the same time as society as a whole faces up to the Corona threat.  

Other disruptive tax changes set to be introduced in April, such as the private sector IR35 roll out, have been sensibly postponed to avoid unnecessary strain on an otherwise economically strained demographic. Many would argue for a similar logic to be applied to landlords, not least in order to help safeguard those who are landlords in-name-only, which includes individuals who may have vulnerable family members as de facto tenants.”