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THE PROPERTY PAPERS AUGUST - ISSUE 31

LANDLORDS FINANCIAL EST. 2013

CONTENTS | AUGUST 2026

AUGUST - ISSUE 31

- 06 -

PASSING ON THE INVESTMENT PROPERTY

- 09 -

CAPITAL EXPENDITURE AND THE CASH BASIS

-10 -

HOW TO CL AIM RELIEF FOR EXCESS INTEREST

-13-

CONTACT FROM HMRC – IS IT GENUINE?

-14 -

JULY PAYMENT ON ACCOUNT AND WHAT TO DO IF YOU NEED TO REDUCE IT

-16 -

TEMPORARY REDUCTION IN VAT ON CHILDREN’ S MEALS AND CERTAIN AT TRACTIONS

-19 -

CONTACTING HMRC

-20 -

SELF-ASSESSMENT AF TER BANKRUPTCY

AUGUST - ISSUE 31

The August Update Welcome to the August edition of The Property Papers. As we continue through the 2026/27 tax year, this month’s newsletter brings together a range of practical tax updates and planning opportunities for landlords, property investors, business owners, and individuals. Inside, we explore key topics including the tax implications of passing on an investment property, capital expenditure under the cash basis, and how to claim relief for excess interest on residential property finance costs. We also provide guidance on identifying genuine contact from HMRC, reviewing and reducing July payments on account where appropriate, and the temporary reduction in VAT on children’s meals and certain attractions. In addition, we explain the different ways to contact HMRC and outline what taxpayers need to know about Self-Assessment after bankruptcy. We hope you find this edition both useful and informative. As always, if you would like advice tailored to your circumstances, our team is here to help.

LANDLORDS FINANCIAL

AUGUST - ISSUE 31

Passing on the investment property A landlord will need to consider whether it is better to pass on an investment property during their lifetime or on their death. Here, we look at the associated tax implications. On death Where a landlord dies, any investment properties that they have will form part of their estate at death and, unless they are sheltered by the nil rate band, inheritance tax (IHT) will be payable at the rate of 40%. However, there will be no capital gains tax to pay. The property benefits from a tax-free uplift at death and the beneficiary’s base cost will be the market value of the property at the date of death. The maximum exposure here is 40% of the value at the date of death. Gifting the investment property In a bid to avoid a hefty IHT charge, landlords may decide it is better to give their investment property to their children while they are still alive. However, if the property has increased in value since they purchased it, this will trigger a capital gains tax charge, even though the landlord does not receive any proceeds. This is because where an asset is gifted to a connected person (such as a child), the capital gain will be worked out using the market value at the date of the gift. Any gain not sheltered by the annual exempt amount (£3,000 for 2026/27) or by losses will be taxed at 18% where the landlord’s income and gains fall in the basic rate band (£37,700 for 2026/27) and at 24% once the basic rate band has been used up. If the property is a residential property in the UK, the gain must be reported to HMRC within 60 days of completion and the capital gains tax paid within the same time frame.

If the landlord does not have sufficient funds elsewhere to meet the capital gains tax liability, consideration could be given to selling the property to the child for an amount equal to the capital gains tax. Although there will be some consideration here, the gain is still worked out by reference to the market value as the connected person rules apply. The child’s base cost for capital gains tax purposes is the market value of the property. If the landlord lives for at least seven years after the date of the gift, it falls out of the estate for IHT purposes. Here the landlord will have paid capital gains tax at a maximum of 24%, whereas if the property had been passed on at death, IHT would have been payable at the rate of 40%. If the landlord does not survive seven years, IHT will be payable. Taper relief applies to reduce the rate of IHT on the gift (where it is not sheltered by the nil rate band) if the landlord lives for at least three years from the date of the gift. However, if the landlord dies within five years of making the gift, the combined capital gains tax and IHT tax hit will be more than 40%. The maximum exposure is 64% if the person gives away the property paying capital gains tax at 24% and then dies within three years, triggering an IHT bill of 40%. Beware the GWR rules If the property continues to be rented out after it has been given away, it is important that the former landlord does not continue to receive the rental income as this will render the gift ineffective for IHT purposes under the gifts with reservation (GWR), rules meaning it will be included in the death estate and liable to IHT.

AUGUST - ISSUE 31

Capital expenditure and the cash basis The cash basis is the default basis of accounts preparation for landlords with annual rental income of £150,000 or less running unincorporated property businesses. Under the cash basis, income is only recognised when received and expenses are only recognised when paid; there is no need to account for debtors and creditors or prepayments and accruals. Simpler rules also apply to capital expenditure. Under the accruals basis, expenses can only be deducted in calculating taxable profit if they are incurred wholly and exclusively for the purposes of the business and are revenue in nature. Relief for capital expenditure is given either through the capital allowances system or as a deduction when computing the gain or loss on the disposal of the property. However, under the cash basis, capital expenditure can be deducted unless it falls into one of the categories listed below in respect of which a deduction is specifically prohibited. Expenditure which is incurred on or in connection with the acquisition or disposal of a business or part of a business cannot be deducted in calculating the taxable profits of the property rental business.

Likewise, no deduction is available in respect of expenditure on an item of a capital nature which is incurred on or in connection with the provision, alteration or disposal of: · any asset that is not a depreciating asset; · any asset that is not acquired for use on a continuing basis in the trade; · a car; · land; · a non-qualifying intangible asset, including education or training; or · a financial asset. A depreciating asset is one which within 20 years is either no longer of use as a business asset or has a value of 10% or less of its value at the time that the expenditure on it was originally incurred. Where the let is a residential let (including now a holiday let), the cost of domestic items cannot be deducted. Instead, relief is given when the item is replaced in accordance with the relief for replacement domestic items. Where the landlord uses the cash basis and incurs capital expenditure which is not deductible, relief may be available under the capital allowances system or in calculating the gain or loss on sale.

AUGUST - ISSUE 31

How to claim relief for excess interest

Landlords running an unincorporated property business obtain relief for interest and finance costs incurred in relation to residential lets (including holiday lets) as a tax reduction. The tax reduction is 20% of the lower of the: · interest and finance costs; · the profits of the property business for the tax year (after any brought forward losses); and · adjusted total income (income after losses and reliefs that exceeds the personal allowance). The deduction cannot create a tax refund. If the interest and finance costs are higher than the business profits and/or the landlord’s adjusted total income, the interest and finance costs will not be relieved in full in the year in which they were incurred. Where this is the case, the unrelieved interest and finance costs are carried forward. Example Ali has a house which he lets out. He has a mortgage on the property on which he pays interest of £10,000 a year. In 2025/26, the profits from his property rental business were £8,000. His adjusted net income was £25,430.

AUGUST - ISSUE 31

Ali is able to claim a tax reduction in respect of his interest costs equal to 20% of the lower of: · £10,000 (interest and finance costs); · £8,000 (profits of the property business); and · £25,430 (adjusted net income). His tax reduction is £1,600 (20% of £8,000). As his business profits are less than his interest costs, he is not able to relieve the interest in full. The unused amount (£2,000) is carried forward. In 2026/27, Ali’s interest remains at £10,000. However, this year the profits of his property rental business are £13,000 and his adjusted net income is £36,000. He is able to claim a tax reduction of 20% of the lower of: · £12,000 (interest costs, being £2,000 brought forward from 2025/26 and £10,000 for 2026/27); · £13,000 (profits of the property rental business); and · £36,000 (adjusted net income). His tax reduction is £2,400 (20% of the interest costs of £12,000). In 2026/27, he is able to secure relief both for the interest incurred in that year of £10,000 and the unrelieved interest of £2,000 brought forward from 2025/26.

AUGUST - ISSUE 31

Contact from HMRC – Is it genuine? HMRC use a range of communication methods, as do fraudsters. Consequently, it can be difficult to be certain that a call, email, letter or text which seems to come from HMRC actually does. How then do you tell if the communication is genuine? Phone calls Scammers may pretend that they are from HMRC and try to extract a person’s bank details by telling them that they are entitled to a tax refund. This should set warning bells ringing – HMRC will never phone someone to tell them that they are entitled to a tax rebate or that they are to be charged a penalty, or to ask for personal information. Not all calls purporting to be from HMRC will be a scam. However, to help callers identify whether a call is genuine, HMRC publish details of their current phone contacts. The list is available on the Gov.uk website at www.gov.uk/guidance/check-if-a-phone-callyouve-received-from-hmrc-is-genuine. However, a missed call or voicemail from 0300 200 3884 is from HMRC. Emails Scammers also send emails purporting to be from HMRC. However, as with phone calls, HMRC publish a list of recent email topics, which can be found of the Gov.uk website at www.gov.uk/guidance/check-if-an-emailyouve-received-from-hmrc-is-genuine. It is advisable not to open a link in an email. Letters HMRC may write to taxpayers. However, it is prudent to check that a letter which seems to be from HMRC actually is. HMRC publish a list of recent letters that they are sending out, details of which can be found on the Gov.uk website at www.gov.uk/guidance/check-if-aletter-youve-received-from-hmrc-is-genuine.

Examples of genuine letters include Letter IDMS99P which tells someone that they have an overdue payment on a Simple Assessment and Letter IDMS99 which tells someone that they have a payment which is overdue. HMRC may also reply to correspondence by letter. Texts HMRC do communicate by text, for example, to follow up a call to a helpline or to advise someone that their Self-Assessment refund is being processed. Some texts may have HMRC branding which will show HMRC as the sender, include the HMRC logo and contain the verified sender information. As with other forms of communication, HMRC publish details of recent text contact on the Gov.uk website (see www.gov.uk/guidance/check-if-a-textmessage-youve-received-from-hmrc-isgenuine). HMRC will never ask for personal information in a text. While a text from HMRC may include a link to the Gov.uk website or to a webchat, recipients should not open any links or reply to a text that claims to be from HMRC and offers a tax refund in exchange for personal information. QR code Leaflets and letters from HMRC may contain a QR code which can be scanned to access further information or help. Details of genuine letters from HMRC containing a QR code can be found on the Gov.uk website at www.gov.uk/guidance/check-if-a-qr-codeon-a-letter-youve-received-from-hmrc-isgenuine.

AUGUST - ISSUE 31

July payment on account and what to do if you need to reduce it Taxpayers within Self-Assessment must make payments on account towards their next tax and Class 4 National Insurance bill if the tax that they owed for the previous tax year was £1,000 or more, unless they paid more than 80% of the tax that they owed for that year outside Self-Assessment, for example, under PAYE. Each payment on account is 50% of the tax and Class 4 National Insurance liability for the previous tax year. The payments must be made by 31 January in the tax year and 31 July after the tax year. If more tax and Class 4 National Insurance is due for the year, the balance must be paid by 31 January after the end of the tax year.

If taxable income has fallen, for example, because profits are less in 2025/26 than in 2024/25, the payments on account can be reduced. Reducing payments on account Where a taxpayer knows that their bill will be lower this year than last year, they can ask HMRC to reduce their payments on account. The taxpayer can do this online by signing into their personal tax account, selecting the option to view their SelfAssessment return and selecting the ‘reduce payments on account’ option. An application to reduce payments on account can also be made by post on form SA303.

31 July 2026 deadline The second payment on account for 2025/26 is due by 31 July 2026. If payment is not made on time or the full amount is not paid by this date, interest will be charged from the due date of 31 July 2026 to the date that the payment is made in full. Review the payments As the July payment on account is made after the end of the tax year to which it relates, the profit for that tax year may be known. Where this is the case, the payment on account should be compared to the actual payments which will be due for the year.

AUGUST - ISSUE 31

Temporary reduction in VAT on children’s meals and certain attractions On 21 May 2026, the Chancellor announced a temporary reduction in the rate of VAT applied to children’s meals and admission to certain attractions. It does not apply to sporting activities. The measure is intended to help families over the summer holiday period. Children’s meals and tickets to attractions currently are liable for VAT at the standard rate of 20%. However, from 25 June 2026 to 1 September 2026 inclusive, a temporary reduced rate of 5% will apply to qualifying children’s meals and tickets to attractions. The rate will revert to 20% from 2 September 2026. Qualifying supplies The temporary reduced rate will apply to children’s meals, children’s cinema, theatre, show and concert tickets and admission to certain attractions. Children’s meals For a meal to be a ‘children’s meal’ both of the following must apply: · the meal is held out for sale only as a meal for children; and · the meal is supplied as part of catering by a restaurant, café or similar establishment for consumption on the premises.

AUGUST - ISSUE 31 It is important to note that the marketing, presentation and price determine whether a meal is a children’s meal rather than who consumes it. Consequently, the reduced rate will not apply to an adult meal consumed by a child but will apply if an adult purchases a children’s meal. It should also be noted that the temporary reduced rate will not apply to meals marketed as smaller portions, lower-calorie options, discounted versions of adult meals and shared meals intended for both adults and children. Where the same meal appears on both the adult menu and the children’s menu, the children’s version should be smaller and cheaper. However, portion size alone will not determine whether a meal is a children’s meal. If the children’s meal is supplied as a package and includes more than one course and a (non-alcoholic) drink, the reduced rate applies to the whole package. However, separate add-ons, such as sides, retain their usual VAT treatment. Meals that include an alcoholic drink are not regarded as children’s meals. The reduced rate does not apply to takeaway meals. Meals that are currently exempt, such as those provided alongside a supply of education, remain exempt. The measure will reduce the cost of a children’s meal which normally costs £12 to £10.50. Theatre and cinema tickets The temporary reduction in VAT will apply to children’s cinema and theatre tickets. These are tickets which are marketed and sold only as a right of admission for a child. A family ticket which provides admission for one or more children will also benefit from the reduced rate. However, group tickets which are not family tickets do not qualify. Adult tickets remain standard rated. The measure will reduce the cost of a £30 children’s theatre ticket to £26.25.

AUGUST - ISSUE 31

Contacting HMRC A taxpayer may need to contact HMRC if they have a query about their tax affairs. There are various ways in which this can be done. HMRC’s digital assistant Taxpayers can ask HMRC’s digital assistant for help by visiting the Gov.uk website at www.tax.service.gov.uk/ask-hmrc/chat/selfassessment. If the digital assistant is unable to answer the question, the taxpayer can ask to be transferred to a webchat with an HMRC advisor if they are available. X HMRC will answer queries via X. However, this route cannot be used to discuss specific cases, so taxpayers should not include personal details. The post should start with @HMRCcustomers. The service is available between 8am and 8pm Monday to Friday and between 8am and 4pm on Saturday.

Post HMRC can also be contacted by post. The correct address will depend on the nature of the query. For Self-Assessment queries, taxpayers should write to: Self-Assessment HM Revenue and Customs BX9 1AS For PAYE and income tax queries, taxpayers should write to: Pay As You Earn and Self-Assessment HM Revenue and Customs BX9 1AS Taxpayers who have already contacted HMRC can use the online service to check when they can expect a reply. Taxpayers are advised not to contact HMRC again until this date has passed. The service is available on the Gov.uk website at www.gov.uk/guidance/check-when-youcan-expect-a-reply-from-hmrc.

Phone Taxpayers can also contact HMRC by phone. For Self-Assessment queries, taxpayers should call 0300 200 3310. Taxpayers with income tax queries should call 0300 200 3300. The lines are open from 8am to 6pm Monday to Friday. Contact details for other helplines can be found on the Gov.uk website.

AUGUST - ISSUE 31

Self-Assessment after bankruptcy Where a taxpayer has been made bankrupt, their Unique Taxpayer Reference (UTR) expires at the end of the tax year in which they were made bankrupt. They cannot use that UTR to file Self-Assessment tax returns for later tax years. Instead, they must re-register for SelfAssessment and obtain a new UTR if they continue to trade after the tax year in which they were made bankrupt or if they need to complete a Self-Assessment tax return for any reason after that tax year. The old UTR must be used for all Self-Assessment tax returns filed for the tax year in which the person became bankrupt. Having different UTRs for pre- and post-bankruptcy enables HMRC to keep the person’s tax affairs for each period separate and ensures that future tax returns are processed correctly. If the old UTR is used post-bankruptcy, this will lead to delays in processing as HMRC will need to correct the UTR.

AUGUST - ISSUE 31

Dedicated Property Accounting You Can Trust At Landlords Financial, we provide specialist bookkeeping, accounting and taxation services exclusively for the property sector. We help landlords, investors, and agents stay compliant, organised, and financially confident. From bookkeeping and monthly management accounts to year-end filings and all property-related taxes, including VAT, Corporation Tax, ATED, and payroll, we keep your finances in order with clear, accurate, and reliable reporting. Fixed-fee options make budgeting simple for UK and overseas clients alike. We also offer specialist service charge accounting for residential and commercial properties, delivering transparent, trustworthy reports for tenants and stakeholders. With dedicated property expertise, straightforward communication, and professional, reliable support, we make managing your property finances simple. Contact us today for a complimentary consultation.

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