{"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

Tax relief toplines<\/h4>\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

Who is affected?<\/h4>\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>\n

By 2020\/21, John won\u2019t be able to deduct his mortgage interest from the rental income and will a total tax bill of <\/span>\u00a38,000<\/b> \u2013 an extra \u00a31,600. <\/span><\/p>\n

(<\/span>Read this example in full and others on the Government website<\/span><\/a>)<\/span><\/p>\n

There\u2019s also been a less-publicised change to the Wear and Tear Allowance. Instead of being able to claim a notional allowance of 10% for wear and tear, landlords can now only claim for work they have <\/span>actually<\/span><\/i> done to the property (and can prove they have done). <\/span><\/p>\n

The impact may not be as dramatic as the tax relief changes, but more landlords could be affected.<\/span><\/p>\n

Your next move<\/h4>\n

Your first step is to understand how you are affected by the new rules, if at all, before make any necessary changes to put yourself in the best position and mitigate any increase in tax.<\/span><\/p>\n

How much tax <\/span>you<\/span><\/i> will pay depends on your specific income, portfolio, and wider finances, and you might need professional tax advice to determine the impact. <\/span><\/p>\n

There isn\u2019t a one size fits all approach but you could transfer properties into a spouse\u2019s name, for example, if they pay a lower rate of income tax.<\/span><\/p>\n

Some landlords are choosing to purchase further properties through limited company buy-to-let vehicles, since companies pay corporation rather than income tax, which can result in significant savings.<\/span><\/p>\n

It\u2019s even possible to transfer existing properties into a limited company structure, but this needs to be done with caution and after taking independent tax advice, since you could trigger Stamp Duty and Capital Gains Tax.<\/span><\/p>\n

Smart landlords are also looking at their wider financial position, considering ways to offset any tax hikes. This could include increasing rents, remortgaging to reduce outgoings as well as negotiating letting agent fees, or cutting them out altogether.<\/span><\/p>\n

The first step is to get up to speed with the tax changes and how they will affect your bottom line. Then you can take practical, positive steps – and professional advice if needed – to get on top of your tax position and your investment portfolio.<\/span><\/p>\n

\"How

 <\/p>\n

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Disclaimer <\/strong> Please note – This is not tax or mortgage advice, it is just a broad overview of the recent changes. Please consult a professional who can assist you with your personal circumstances and how these changes might effect you.<\/p>\n","protected":false},"excerpt":{"rendered":"

New rules could affect the amount of tax you pay on your investment properties Tax can be headache-inducing at the best of times, but even more so when the rules change. For landlords, that\u2019s exactly what\u2019s happened this year. Hopefully you won\u2019t be one of the thousands of landlords to be hit with a higher… Read more »<\/a><\/p>\n","protected":false},"author":723,"featured_media":5938,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":""},"categories":[4,26],"tags":[],"acf":[],"_links":{"self":[{"href":"https:\/\/www.buyassociationgroup.com\/en-gb\/wp-json\/wp\/v2\/posts\/5935"}],"collection":[{"href":"https:\/\/www.buyassociationgroup.com\/en-gb\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.buyassociationgroup.com\/en-gb\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.buyassociationgroup.com\/en-gb\/wp-json\/wp\/v2\/users\/723"}],"replies":[{"embeddable":true,"href":"https:\/\/www.buyassociationgroup.com\/en-gb\/wp-json\/wp\/v2\/comments?post=5935"}],"version-history":[{"count":0,"href":"https:\/\/www.buyassociationgroup.com\/en-gb\/wp-json\/wp\/v2\/posts\/5935\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.buyassociationgroup.com\/en-gb\/wp-json\/wp\/v2\/media\/5938"}],"wp:attachment":[{"href":"https:\/\/www.buyassociationgroup.com\/en-gb\/wp-json\/wp\/v2\/media?parent=5935"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.buyassociationgroup.com\/en-gb\/wp-json\/wp\/v2\/categories?post=5935"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.buyassociationgroup.com\/en-gb\/wp-json\/wp\/v2\/tags?post=5935"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}