Imminent Buy To Let Tax Clampdown
There’s a new warning today for investors who will be hit by the buy to let tax changes coming into effect on April 6.
From that date BTL landlords will not be able to rely on the principal private residence relief and sell a property under the old rules.
Instead the new requirements will leave them just 30 days to settle any capital gains buy to let tax due after completion instead of anywhere between 10 to 22 months under the current regime.
Law firm Collyer Bristow warns that the changes are little understood by the lettings sectors and failure to comply could leave landlords open to stiff penalties.
James Cook, a partner at the firm, says: “Under the current rules, anyone selling a property has until 31 January in the following tax year to file and settle any CGT liability, giving them potentially up to 22 months.
“From 6 April 2020, all CGT liabilities will need to be settled in just 30 days of completion of a sale. That leaves very little time to calculate the tax to be paid, report the gain, and pay tax. It is likely to catch out many second homeowners and investors who have either failed to plan for the tax charge or do not have the available cash.”
For higher rate income tax payers, the rates for CGT are currently 28 per cent on gains from residential property and 20 per cent on gains from all other chargeable assets.
Conversely, the CGT rates for basic rate income tax payers are 18 per cent and 10 peer cent respectively.
The annual capital gains tax allowance is set to increase on 6 April 2020 to £12,500 from £12,000 now.
Late filing of CGT returns will leave individuals facing an immediate £100 fine with an additional penalty of the higher of £300 or five per cent of the tax due if it’s over six months late.
A further penalty of the higher of £300 or five per cent of the tax due is payable if more than 12 months late.
Cook adds: “The changes were first announced in 2015 but have been pushed back as HMRC was concerned that second homeowners and investors were not aware of the changes. From conversations with our clients, it appears that they are still not fully aware of the implications of the change.”