{"id":5935,"date":"2017-10-26T17:08:33","date_gmt":"2017-10-26T16:08:33","guid":{"rendered":"https:\/\/www.buyassociation.co.uk\/?p=5935"},"modified":"2017-10-26T17:08:33","modified_gmt":"2017-10-26T16:08:33","slug":"tax-relief-changes-what-you-need-to-know","status":"publish","type":"post","link":"https:\/\/www.buyassociationgroup.com\/en-gb\/2017\/10\/26\/tax-relief-changes-what-you-need-to-know\/","title":{"rendered":"Tax relief changes \u2013 what you need to know"},"content":{"rendered":"
New rules could affect the amount of tax you pay on your investment properties<\/b><\/p>\n
Tax can be headache-inducing at the best of times, but even more so when the rules change.<\/span><\/p>\n For landlords, that\u2019s exactly what\u2019s happened this year.<\/span><\/p>\n Hopefully you won\u2019t be one of the thousands of landlords to be hit with a higher tax bill due to the restriction of tax relief on property finance costs, but you need to be prepared just in case.<\/span><\/p>\n That way, you can adapt your portfolio if necessary and mitigate any added costs by saving money elsewhere.<\/span><\/p>\n Firstly, you need to know what\u2019s changed, and understand exactly how it will affect you.<\/span><\/p>\n Until now landlords have been able to claim mortgage interest payments as an allowable expense, <\/span>before<\/span><\/i> tax.<\/span><\/p>\n But from April 2017, the ability to offset these costs started to be gradually replaced by what is effectively a 20% tax credit, regardless of your highest tax rate.<\/span><\/p>\n In effect, landlords will now be taxed on their turnover, or rental income, rather than their profit. <\/span><\/p>\n The changes are <\/span>being phased in from this year until 2020\/21<\/span><\/a> so the effect will be gradual \u2013 but it will start from your next tax return.<\/span><\/p>\n And the impact can\u2019t be downplayed. While some landlords will simply notice an administrative change, others will literally be pushed from profit to loss.<\/span><\/p>\n Don\u2019t panic. Most landlords won\u2019t be worse off as a result of the changes.<\/span><\/p>\n Four out of five won\u2019t face a hike, according to the Government\u2019s own impact study.<\/span><\/p>\n Higher and additional rate taxpayers are likely to be hardest hit, because the new tax credit is limited to 20%, while they previously enjoyed tax relief at 40% or 45% under the old system.<\/span><\/p>\n The National Landlords Association has estimated that 200,000 landlords will be directly impacted \u2013 \u00a0and it reckons the average cost will be over \u00a31,400 a year.<\/span><\/p>\n Most basic rate taxpayers won\u2019t be adversely affected, but those of the cusp of the higher rate tax bracket could end up being pushed into it.<\/span><\/p>\n The government gives the example of \u2018John\u2019, who has self-employment income of \u00a335,000 and rental income from residential property of \u00a318,000.<\/span><\/p>\n His mortgage interest is \u00a38,000 per year and he has other expenses of \u00a32,000.<\/span><\/p>\n Before the changes his income tax bill was <\/span>\u00a36,400<\/b>.<\/span><\/p>\nTax relief toplines<\/h4>\n
Who is affected?<\/h4>\n