Property Tax Changes in 2020: Property taxation changed the shape of many landlord conversations during 2020.
The issue was not simply how much tax a landlord might pay. Tax treatment could influence ownership, borrowing capacity, rental coverage and future portfolio plans.
For mortgage brokers, this created an important boundary. Advisers needed to understand how tax changes affected mortgage applications without presenting mortgage guidance as tax advice.
Property Tax Changes in 2020
During 2020:
- Mortgage interest tax relief became fully restricted for individual residential landlords.
- Lettings Relief became available mainly where an owner shared their home with a tenant.
- Final Period Relief reduced from 18 months to 9 months.
- Certain residential property gains had to be reported and paid within 30 days.
- The individual Capital Gains Tax allowance was £12,300 for 2020/21.
- Corporation Tax remained at 19%.
- Temporary Stamp Duty Land Tax rates began on 8 July 2020.
These changes made ownership structure, tax status and long-term intention more relevant to buy-to-let mortgage discussions.
Mortgage Interest Tax Relief from April 2020
The restriction commonly associated with Section 24 reached its final stage from 6 April 2020.
Individual residential landlords could no longer deduct their finance costs fully from rental income before calculating taxable profit. Instead, qualifying finance costs generally produced a basic-rate tax reduction.
Finance costs could include:
- mortgage interest;
- interest on loans used for property purposes;
- fees connected with arranging or repaying qualifying finance.
The change did not operate in the same way for property held through a limited company. However, that did not mean company ownership was automatically more suitable.
A company application could involve different mortgage rates, fees, guarantees, accounting costs and extraction taxes. Existing properties could also create tax and legal consequences if transferred into a company.
Brokers discussing ownership options should therefore distinguish mortgage criteria from tax advice. Our limited company buy-to-let guide explains the mortgage and lender considerations.
Capital Gains Tax Changes from 6 April 2020
Several Capital Gains Tax changes affected landlords selling properties that had previously been their main home.
Lettings Relief
Before April 2020, qualifying landlords could sometimes claim Lettings Relief when a former main residence had later been rented out.
From 6 April 2020, the relief became mainly restricted to situations where the owner remained in the property and shared occupation with a tenant.
This reduced the relief available to many accidental landlords who had moved away before letting their former home.
Final Period Relief
Final Period Relief reduced from 18 months to 9 months.
This meant a shorter final period of ownership could qualify automatically for Private Residence Relief after the owner had moved out.
The 36-month period remained available in certain cases involving disabled people or people entering long-term residential care.
Reporting Property Gains
From 6 April 2020, UK residents disposing of residential property on which CGT was payable generally had to report the gain and pay an estimate of the tax within 30 days of completion.
The reporting period was a practical concern for landlords. Records of acquisition costs, improvements, ownership periods and previous occupation needed to be available soon after completion.
HMRC published further information about the 2020 Capital Gains Tax reporting changes.
Capital Gains Tax Allowance in 2020/21
The individual Capital Gains Tax annual exempt amount was £12,300 for the 2020/21 tax year.
The allowance applied to an individual’s overall net taxable gains rather than separately to every property sold.
Property owners still needed to calculate:
- the original acquisition cost;
- qualifying purchase and sale costs;
- eligible capital improvements;
- available reliefs;
- ownership shares;
- relevant capital losses.
A mortgage broker would not calculate the client’s CGT liability. However, a possible tax payment could affect available deposit funds, refinancing plans or the proposed repayment strategy.
Stamp Duty Land Tax During 2020
Additional residential properties remained subject to higher SDLT rates.
However, temporary SDLT rates began in England and Northern Ireland on 8 July 2020. During the initial temporary period, additional-property buyers generally paid:
- 3% on the portion up to £500,000;
- 8% from £500,001 to £925,000;
- 13% from £925,001 to £1.5 million;
- 15% above £1.5 million.
The temporary change could reduce purchase costs, but it did not remove the additional-property surcharge.
Brokers still needed to establish whether the proposed purchase was an additional dwelling and ensure that clients obtained legal or tax guidance on the correct liability.
Corporation Tax and Company Ownership
The main Corporation Tax rate remained at 19% for the financial year beginning 1 April 2020.
This led more landlords to consider limited company ownership. However, Corporation Tax was only one part of the decision.
A company structure could also affect:
- lender choice;
- mortgage pricing;
- rental stress calculations;
- director guarantees;
- accounting requirements;
- access to retained profits;
- future property transfers;
- succession planning.
Our buy-to-let mortgage assessment guide explains how ownership and tax status can influence lender calculations.
What Mortgage Brokers Needed to Establish
A useful 2020 buy-to-let fact-find needed to look beyond the property and expected rent.
Relevant questions included:
- Was the property being purchased personally or through a company?
- Was the applicant a basic-rate or higher-rate taxpayer?
- Was the property previously the applicant’s main residence?
- Was the client buying, refinancing or preparing to sell?
- Would a tax payment reduce the available deposit or equity?
- Did the applicant own other properties?
- Had the client received advice from an accountant or tax adviser?
A mortgage decision cannot correct an unsuitable tax structure. Equally, a tax-efficient structure may not fit the client’s mortgage requirements.
Good advice therefore depends on understanding where one professional responsibility ends and another begins.
How a Mortgage Network Could Support Advisers
Property tax changes increased the need for clear files, suitable referrals and access to lenders with different ownership criteria.
A mortgage network could support advisers through:
- technical buy-to-let guidance;
- lender criteria support;
- compliance oversight;
- specialist case placement;
- limited company lender access;
- portfolio landlord application support.
Experienced mortgage advisers can learn more about the support available through Connect Network.
Landlords who need mortgage advice can use Connect Experts to find a limited company buy-to-let adviser.
Property Tax Changes in 2020 FAQs
Did landlords lose all mortgage interest relief in 2020?
No. Individual residential landlords generally received a basic-rate tax reduction for qualifying finance costs instead of deducting those costs fully from rental income.
Was Corporation Tax 25% in 2020?
No. The main Corporation Tax rate for the financial year beginning 1 April 2020 was 19%.
What was the CGT allowance in 2020/21?
The individual annual exempt amount was £12,300 for the 2020/21 tax year.
Did the 2020 SDLT holiday remove the landlord surcharge?
No. Buyers of additional residential properties remained subject to higher rates during the temporary SDLT period.
Could a mortgage broker recommend a limited company for tax reasons?
A broker could explain the mortgage implications of company ownership. A qualified accountant or tax adviser should assess whether the structure was suitable for tax purposes.
Important Information
This article describes rules and market conditions relevant to 2020. It is not current tax advice.
Tax treatment depends on individual circumstances and can change. Clients should obtain advice from a qualified tax adviser, accountant or solicitor.
The Financial Conduct Authority does not regulate some forms of buy-to-let mortgage, commercial mortgage and business lending.
Your property may be repossessed if you do not keep up repayments on a mortgage or other loan secured against it.