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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4978
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I am a landlord, with the new tax changes coming in

Resolved Question:

I am a landlord, with the new tax changes coming in for relief on mortgage interest how does this affect someone in the 40% tax bracket?
last tax year profit was £17700, my work income £44269. with a tax bill of £8300 on top of my paye
Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
forgot to mention this is based on mortgage interest payments of £12,519. which goes on my outgoings figure how do the tax changes affect this amount, im assuming this is the bit that is affected, and will reduce, therefore increasing my tax bill.
Expert:  taxadvisor.uk replied 1 year ago.
Thank you for your question...Changes introduced in Summer Budget 2015 are as followsWear and tear allowance will be replacedfrom April 2016From April 2016 the formal Wear and Tear Allowance - which allows 10 per cent of rental profits to be written off for notional wear and tear, even if there has been no such actual expenditure in that particular year - will be replaced with arelief that enables all landlords to deduct the costs they actually incur on replacing furnishings in the property. Mortgage interest relief restriction comes into force from April 2017This measure will restrict relief for finance costs on residential properties to the basic rate of Income Tax. This will be introduced gradually from 6 April 2017. Finance costs - includes mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.Landlords will be able to obtain relief as follows:In 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reductionIn your case (£12,519x 75%) £9,389 would be allowed as a deduction from property income at your marginal rate of 40% and the rest £3,130 would attract tax relief at 20%, making a total tax relief of (3,756+626) £4,382 against £5,007 under current arrangement. In 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction(12,519 x 50%) £6,259 at 40% and £6,260 at 20%, making total tax relief (2,504+1,252) £3,756 In 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction(12,519 x 25%) £3,130 at 40% and £9,389 at 20%, making total tax relief (1,252+1,878) £3,130 From 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction I hope this is helpful and answers your question.If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.
Customer: replied 1 year ago.
Thankyou, so for the final year onwards it will look like this?
From 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction
12,519 x 20% , making total tax relief £2,503.80 instead of £5,007 currently is that correct?My wife is a 20% tax rate payer so hers will already be like this end figure for same figures? is that correct
Customer: replied 1 year ago.
bit confused, at the moment when i do my tax return i just put the full mortgage interest down and take it away from rental income along with any other allowable expenses. how is that relief at 40%?
Expert:  taxadvisor.uk replied 1 year ago.
Thank you for your reply.From tax year 2020-2021 all mortgage interest will attract tax at 20% - you are correct in your assessment.The changes announced would come into force from tax year 2017-18. I presume HMRC will introduce additional boxes in tax return to cater for the change.For the moment, continue to do as you have done in the past. I hope this is helpful.If you are happy and there are no more issues I will appreciate if you would kindly rate my service/accept the service I have provided to ensure I get credited for it by Just Answer.
Customer: replied 1 year ago.
So, just to clarify if i may.My tax bill last time is £8300 approx, and after the changes it will be about £11400 approx so not a massive change?
Customer: replied 1 year ago.
just found this handy calculator.https://www.rla.org.uk/taxcentre/tax-calculator.shtml
Expert:  taxadvisor.uk replied 1 year ago.
Thank you for your reply..Your tax bill will go up by the difference between tax on property income now availing tax relief on interest at marginal rate and post change.Thanks for providinga link for handy calculator.I hope this is helpful
Customer: replied 1 year ago.
Thankyou was a bit worried by some of the things i had read, in some of the broadsheets, they made it seem a lot worse.i will leave feedback, thanks again. btw is this a one time question thing or am i on 7 days? not very clear.
Expert:  taxadvisor.uk replied 1 year ago.
Thank you for your reply.The change introduced is not good news... one should assess each case on its merits and circumstances.As far as the duration of question goes, you will have to liaise with Customer support at Justanswer as I am an expert who answers questions and don't get involved in customer services.Many thanks.
taxadvisor.uk and other Tax Specialists are ready to help you
Customer: replied 1 year ago.
Haha, okay, thankyou for your help bye
Expert:  taxadvisor.uk replied 1 year ago.
I thank you for accepting my answer.
Best wishes.

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