Buy to Let Tax Changes

Published ¤ 24/11/2016 10:01:42

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From 2017 the government are introducing new tax laws aimed at private landlords. These new laws will mean a landlord can no longer offset the mortgage interest from their rental income when calculating their tax, and they will only receive a 20% tax credit. The moves will be introduced over 4 years in steps.

Download our calculator to see how the changes will affect you - click here.

What this means is that from 2020 a landlord will be taxed on turnover rather than profit. This will be especially bad for higher rate and additional rate tax payers. For instance, if the mortgage interest is 75% or more of the rental income, 40% tax payers will make a loss!
Here is an example:

A landlord is a 40% tax payer. He receives £20,000 a year in rent, and has mortgage interest payments of £15,000.

At present he can deduct the full mortgage interest from the rent before calculating his tax. For instance, £20,000 - £15,000 = £5,000. He pays 40% of £5,000 in tax. HMRC receives £2,000, and the landlord receives £3,000.

From 2020, the landlord will be taxed on turnover, so he will pay 40% tax on £20,000. He will then receive a 20% tax credit on the mortgage interest. For instance, 40% of £20,000 = £8,000. 20% of £15,000 = £3,000. So, HMRC will receive £5,000 and the landlord will receive NOTHING!
Note that these changes will NOT affect landlords who hold their property in a limited company, and they will continue to see their profits taxed at corporation tax rates.
Download our calculator to see how the changes will affect you - click here.
If you are concerned about these new rules, or want to discuss your options, please call PKS on 01256 701205, or send us an email.
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