New tax year property updates

New tax year property tips
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The new tax year has now kicked in from the 6th of April so here’s how it could impact you from a property perspective.

1. Fresh new ISA allowance lands

As of today, savers have access to a fresh ISA allowance.Under the terms of the accounts, consumers can save £20,000 into the vehicles each year without having to pay tax on any interest payments, dividends or gains. The money can be split between Cash ISAs, Stocks and Shares ISAs and Innovative ISAs.

Alternatively, people aged under 40 can opt for a Lifetime ISA,into which they can save £4,000 of their annual ISA limit each year until they are 50. The Government will add a bonus of 25% or up to £1,000 a year, but the money must be used to buy your first home or to save for retirement.

First-time buyers saving for a property deposit can opt to use the Help to Buy ISA, under which they can save up to £3,400 in the first year and £2,400 in subsequent years. The Government will then top this up with a bonus of 25% up to a maximum of £3,000. But aspiring first-time buyers who want to take advantage of the scheme need to move soon, as it will not be possible to open new accounts after November 30 this year.

Savers who are interested in getting exposure to the housing market could consider taking out a property ISA, which pools investors cash into a REIT and uses the money to purchase buy-to-let homes across UK cities. Investors benefit from both the rental income and any increases in the value of the properties purchased.

2. Tax relief for landlords reduces

The new tax year brings a further reduction in the amount of tax relief on mortgage interest that landlords can claim. Up until 2016/17, landlords could deduct all of their mortgage interest and other allowable costs from their rental income before calculating how much tax they had to pay.

But the amount they can claim has gradually been tapered down, and this year they can offset only 25% of these costs against their rental income, with 75% of the costs given as a basic rate tax reduction.

The relief will be phased out completely from April 6, 2020, when landlords will only be able to claim a basic rate tax deduction on mortgage interest, even if they are a higher rate taxpayer.

3. Earn more before paying tax

One piece of good news is that from April 6, everyone can earn more before they have to start paying tax. The personal allowance now goes up to £12,500, while people will have to earn £50,000 before the 40% higher rate of tax kicks in.

The increase is relevant for landlords, as rent from investment properties is classed as income.

It is also good news for people saving for a property deposit, as they will be £650 a year better off if they are a basic rate taxpayer and nearly £3,650 better off if they are a higher rate one.

4. Capital gains tax allowance increases

Another allowance that has increased in the new tax year is that of capital gains tax. People will now be able to make capital gains of £12,000 a year before they become liable for the tax, a slight increase from £11,800 in the previous tax year.

This is good news for investors selling buy-to-let homes, although they will still be stung with a capital gains tax rate of 18% for basic rate taxpayers and 28% for higher rate one, rather than rates of 10% and 20% respectively charged on other assets.

5. Right to Buy discounts increased

For people interested in buying a council or social housing property, the maximum discount they can benefit from has increased to £82,800, rising to £110,500 in London.

Right to Buy enables eligible council and housing association tenants in England to buy their home for a discount to its market price, depending on how many years they have lived there. The maximum discount increases each year in line with inflation as measured by the Consumer Prices Index.

And what’s not changing

Unfortunately, for people hoping to inherit a property, there has been no change to the inheritance tax threshold, which remains at £325,000, with tax charged at 40% on assets above this level.

There has also been no increase to the annual Rent a Room allowance,under which homeowners can earn up to £7,500 a year tax free by renting out a room in their property.

From the start of the new tax year, however, a new condition has been added to the scheme stating that the property in which the room is let must be your main or only residence.

Stamp duty rates also remain unchanged, although the Government is currently carrying out a consultation on imposing a 1% surcharge on overseas buyers.

So that concludes this episode of Ask the Estate Agent Podcast. You can contact us anytime using the links below:

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So don’t forget to contact us with any subjects you would like us to cover or questions you would like answering in the coming episodes and until next time I would like to thank you for listening and goodbye for now.

About the author, David Thomas

David Thomas is an Entrepreneur and passionate Estate Agent who loves helping others on their property journey.

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