What does Coronavirus mean for landlord taxation?
Section 24 was fully implemented on 6 April 2020.
I know some people did lobby to get this delayed in light of the current situation, but in a time where the government will likely need to increase taxes to recoup the financial aide offered to business and employees, reducing tax charges for landlords seemed like mission impossible!
However, the common view is that profits will be down in the 2020/21 tax year.
This coupled with mortgage holidays will likely result in the full effect of section 24 being deferred until the 2021/22 tax year.
The 31 July tax payments can be deferred. This is very different to being waived. The tax will still become due in January 2021, although “Time To Pay” arrangements will likely be available for people in real need.
What can landlords do?
I like to have an optimistic outlook on life.
House prices will fall due to Coronavirus. “CEBR” are predicting a 13% drop in 2020 but it is expected that house prices will rise again in 2021.
Landlords with a current Inheritance Tax (IHT) concern can use the fall in property values to their advantage.
IHT planning works by using an investors IHT allowances to move assets to the next generation(s), either directly or using trusts. Every investor has certain IHT allowances.
Lower house prices mean that more assets will fall within an investors IHT allowances, resulting in larger IHT savings for the investor once house prices rise in 2021.
The full implementation of tax planning to reduce the effects of section 24 can take around 12 months. Therefore, now may be a perfect time to consider how the mitigate the full effects of section 24 in the 2021/22 tax year.
Landlord taxation: Post-Coronavirus
Given the amount of aide the government has issued to businesses and employees, once this situation is fully resolved I imagine there will be tax increases.
Will this be a return to the 50% additional income tax rate? Will the basic rate of income tax increase from 20% to say 22%? Nobody knows.
What we do know is that Section 24 almost certainly will not be reversed.
Increased tax rates will only increase the effect of this severe tax. So now, more than ever, landlords need to plan to mitigate the effects of Section 24.
Sean Hughes – Comprehensive Tax Planning