November 20th, 2020
As we approach the calendar year-end it’s becoming easier and easier to imagine 2020 in the rear-view mirror.
Though a tumultuous year, 2020 has had some interesting developments for the mortgage market and for self-employed professionals – with the tax year-end approaching rapidly, here’s why April 2021 could be the most important ever.
Things to Watch Out For as The Tax Year-End Approaches:
The Stamp Duty Holiday
A big reason the Tax Year End is at the front of home buyers minds this year is the current Stamp Duty end date of March 2021.
To give a brief recap, Stamp Duty Land Tax is a tax that is required typically when purchasing a new property. Normally the tax is charged within bands (see the table below) and the purchaser is normally required to pay a portion of Stamp Duty on their property within those brackets outlined.
Now and until 31 March 2021, home buyers will now benefit from an exemption on Stamp Duty the first £500,000 of borrowing, subject to the purchase completing before tax year-end in 2021.
Stamp Duty Rates Prior to the Holiday and Due to Resume 1st April 2021:
| Purchase Price | Rate on Main Residence |
| Up to £125,000 (£300,000 for first-time buyers) | 0% |
| £125,0001 – £250,000 | 2% |
| £250,001 – £925,000 | 5% |
| £925,001 – £1,500,000 | 10% |
| £1,500,001 + | 12% |
If you’re looking to take advantage of the Stamp Duty holiday before the current March 2021 end date, homebuyers are advised to act soon.
Between the increasingly high demand for mortgages and the pressures of coronavirus on the market, delays have been created in the process, experts are now estimating a soft deadline of 6th December in order to take advantage of these savings ahead of the tax year-end.
You can find out more about Stamp Duty in our recent article: How To Beat The Stamp Duty Deadline or on the official government website.
Changes to IR35
The shift in focus to employers rather than contractors has been delayed until 6 April 2021.
The delay announced earlier this year was helpful to contractors for a number of reasons but particularly due to the fact that for many it provides the chance to maintain their current role or to secure another on more lucrative terms.
The other benefit of the delay is that it gives contractors and companies more time to adjust and prepare for the changes. The delay can also help contractors with mortgages too.
Applying for a mortgage may be a good idea before the changes
If you are considering getting a mortgage now could be the ideal time to do so if you expect your income to decrease once you begin working within IR35.
Providing evidence of regular income is one of the first items that potential lenders will review for a contractor.
We asked our experts everything you need to know about deposits and documentation here.
Checking your credit history and staying up to date with your credit score is also important.
Reviewing this regularly will allow you to see where you can improve your profile, which is essential to providing evidence that you are a reliable borrower.
Try an app like Credit Karma to keep an eye on your credit health.
The Bank of England Base Rate
In an emergency response to the Coronavirus pandemic earlier this year the Bank of England slashed the base rate from 0.75% to 0.25%, and then once further to 0.1% in March 2020, where it remains at a historic low.
This was a measure intended to reduce the risk of inflation increasing and the maintenance at this rate continues to support this measure.
For home buyers this has meant record low interest rates, meaning lending is more affordable than ever whilst returns on savings have been reduced by most banks.
As we approach the tax year-end it is unclear whether this will be maintained as it has been so far in 2020.
Housing Market Boom
With house prices hitting a new record high for a third consecutive month, the housing market boom continues since the original March 2020 lockdown and Stamp Duty holiday began in July.
As we enter into the new year and towards the tax year-end, housing demand is predicted to rise and propel the market boom further.
With home movers trending towards the countryside, bigger gardens and spaces to work at home, this could be the perfect time to move home.
The New Buy-To-Let Scheme
Phased changes to the current Buy-To-Let scheme began in 2017 after the decision in 2015 to cut mortgage interest tax relief for buy-to-let properties.
| Tax Year | Phased Change |
| 2017/18 | The deduction of allowable finance costs will be restricted to 75%, with 25% being available as a basic rate income tax deduction. |
| 2018/19 | The deduction of allowable finance costs will be restricted to 50%, with 50% being available as a basic rate income tax deduction. |
| 2019/20 | The deduction of allowable finance costs will be restricted to 25%, with 75% being available as a basic rate income tax deduction. |
| 2020/21 | 100% of the mortgage interest will be added back to the rental profit and the tax calculated according to the tax bracket the landlord falls into. A deduction of 20% of the interest disallowed will be taken from the tax payable. |
This also affects Capital Gains Tax when selling an investment property: currently, you’ll typically need to pay Capital Gains Tax if you make a profit when selling an investment property – though this depends on the size of the profit and your financial circumstances.
At present, landlords have been able to declare any Capital Gains Tax liabilities in their next annual tax return, giving them potentially well over a year to pay the bill.
However, under the new guidelines, landlords must declare and pay any Capital Gains Tax liabilities using the government’s new online service within 30 days of selling the property.
Check out CMME’s Free Buy-To-Let Guide
Useful Resources:
- CMME’s Free Guide To Contractor Mortgage
- CMME’s Free Guide To Remortgage
- CMME’s MyMoney Webinar: Are You Mortgage Fit? | CMME Video
CMME can give advice and support to self-employed people and offer bespoke advice on your individual situation. If you would like to know more, contact us today.