Tax­ing ques­tions

EDP Norfolk - - LAST WORD IN PROPERTY - Jon Hook can be con­tacted at Nor­wich Ac­coun­tancy Services on 01603 630882 email [email protected]­wichac­coun­tan­cy­ser­vices.co.uk nor­wichac­coun­tan­cy­ser­vices.co.uk

Buy-to-let in­vestors who are also higher rate tax­pay­ers can no longer off­set all of their mort­gage in­ter­est against rental in­come be­fore cal­cu­lat­ing the tax due. The re­duc­tion will be phased in be­tween now and 2020 and will be re­placed by a 20 % tax credit.

In year one, (2017/18) land­lords can off­set 75% of their mort­gage in­ter­est against rental prof­its then 50% in 2018/19, 25% in 2019/20 and noth­ing in 2020/21. Al­though it may seem that it only af­fects those who al­ready pay higher-rate tax, the way the ‘tax’ is struc­tured means that it will push some ba­sic-rate tax­pay­ers into the higher-rate bracket be­cause their net rental in­come will ap­pear ar­ti­fi­cially higher due to the re­duced (and even­tu­ally) elim­i­nated de­ductible mort­gage in­ter­est.

Al­though re­placed with a ‘tax credit’, this tax­able rental in­come ‘in­fla­tion’ will, in cer­tain cases, cause means-tested ben­e­fits to be lost. The change does not ap­ply to those who own prop­erty through lim­ited com­pa­nies, just pri­vate in­di­vid­ual land­lords.

To mit­i­gate the ef­fects of this new ‘tax’, land­lords will need to be­come more fo­cused on cost cut­ting, es­pe­cially with mort­gage in­ter­est where they can.

If they have sav­ings, they should look to get­ting an off­set mort­gage – in­ter­est is only charged on the net balance thus low­er­ing the monthly in­ter­est cost. Other ways to re­duce mort­gage in­ter­est in­clude re­mort­gag­ing to get a bet­ter rate of in­ter­est or re­duc­ing the mort­gage bal­ances via over­pay­ments. Other ways to mit­i­gate the ef­fects in­clude in­creas­ing rents, never a pop­u­lar op­tion. but an in­evitable one for some land­lords. A re­cent sur­vey from The Res­i­den­tial Land­lords As­so­ci­a­tion found that two thirds of its mem­bers ex­pected to in­crease rents to deal with the new tax. It also be­lieved that the in­creases were likely to be in the or­der of 20 – 30 % mak­ing the im­pact of the tax on ten­ants too.

Some land­lords are re­mort­gag­ing their main res­i­dence us­ing the re­leased cash to pay off some of the mort­gages on their buy-to-let prop­er­ties. Oth­ers have moved their prop­er­ties in­side lim­ited com­pa­nies to dodge the tax changes de­spite in­cur­ring other costs in­clud­ing large cap­i­tal gains tax bills.

ABOVE:Buy-to-let in­vestors are los­ing tax ben­e­fits

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