As a Land Lord are you aware of how the new Tax Changes will affect you? According to research, 47% of landlords don’t fully understand the implications of the upcoming tax relief changes. We can help you understand how you could be affected.
Key Changes In summary:
The changes are effective from the 2017/18 financial year and will be phased in over four years.
Mortgage interest tax relief will be limited to the basic rate of tax, currently 20%, and given as a reduction in tax liability instead of a reduction to taxable rental income.
The changes mean that the basic rate tax payers could find themselves pushed into a higher rate band as a result.
There’s no impact on tax liability for landlords who remain as zero or basic rate payers, after calculating taxable income under the new rules
Other allowable costs, on an actual cost basis, can still be deducted from gross rental income for the purposes of determining taxable income.
Potential impacts:
Higher rate and additional rate tax payers will pay more in tax, as tax relief on mortgage interest will be limited to the equivalent level of a basic rate tax payer (currently 20%).
With taxable income now being calculated without a deduction for finance costs, some landlords may experience an upward movement in tax bands.
It could be possible that some landlords currently making a small net profit will experience negative cash flow after tax.
Most impacted:
Existing higher rate tax payers (40% and 45%).
Landlords with marginal rental cover (high mortgage costs relative to rental income).
Tax payers moving into the higher rate tax band as a result of the changes.
Landlords with strong rental cover.
Lower rate tax payers remaining in the same band and unencumbered landlords are unaffected.
