What does the new tax year mean for property investors?

Posted by Mark Lloyd, Property Mastery Academy on 29 April 2019 | Comments

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The new tax year started on 6 April, and with it brings some changes that will affect property investors.

Let’s take a look at some of the new tax allowances for the new tax year.

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Personal tax allowance goes up

First the good news. Your personal tax allowance, the amount you can earn without paying any income tax, goes up to £12,500 and you now have to earn £50,000 before the 40% higher rate of tax applies.

Rent from investment properties is classed as income, so this is relevant for landlords. However, it’s more significant for those saving for a deposit for a property as they’ll be £650 a year better off if they’re a basic rate taxpayer and nearly £3,650 for those paying the higher rate of tax.

Capital gains tax allowance is increased

This year also sees an increase in capital gains tax. You can now make capital gains of £12,000 a year before being liable for tax. This is up from £11,800 last year.

However, investors who are basic rate taxpayers will incur a capital gains tax rate of 18% while a 28% rate will apply to higher rate taxpayers. Previously these rates were 10% and 20% respectively.

Tax relief for landlords goes down

Bad news. This year brings in a further reduction in the amount of tax relief on mortgage interest that landlords can claim.

Previously, landlords could deduct all of their mortgage interest and other allowable costs from their rental income and then calculate how much they owned in tax. But this ended in 2016/17.

Since then, the amount landlords can claim has gradually been reduced. This year, landlords can only offset 25% of all mortgage interest and allowable costs against rental income with 75% of the costs given as a basic rate tax reduction.

From 6 April 2020, tax relief on mortgage interest will be phased out. After this date, landlords can only claim a basic rate tax deduction on mortgage interest. This applies even to higher rate taxpayers.

New ISA allowances for 19/20

The Help to Buy ISA scheme ends this year on November 30, so if you want to take advantage of this ISA, you’ll have to open an account before this date. The scheme is aimed at first-time buyers saving for a deposit. You can save up to £3,400 in the first year and £2,400 in subsequent years – the Government tops this up with a bonus of 25% up to a maximum of £3,000.

Regular ISAs allow you to save £20,000 each year without having to pay tax on any interest payments, dividends or gains. You can divide this amount between cash ISAs, stocks and shares ISAs and innovative ISAs.

If you’re aged under 40, you have the option of a Lifetime ISA, where you can save £4,000 of your annual ISA limit each year until you’re 50. The Government gives you a bonus of 25% or up to £1,000 a year. But this money can only be used to purchase your first home or saved for your retirement.

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