So, how will the new tax restrictions on Buy-To-Let (BTL) finance affect you?
Let me explain…. As ever, this proposal by the Chancellor will affect different people in different ways, so I would urge you to seek professional advice which will be tailored to your circumstances, but if I can explain the principles, I’m sure that will help in the first instance.
The proposal is to eventually allow income tax relief on BTL finance costs at the basic rate (20%) of tax only. This will be implemented, as proposed, starting in 2017/18, so the good news is that for the next year there is no change in the BTL mortgage interest relief although a separate measure will get rid of the 10% “Wear and Tear” tax allowance for furnished lettings with effect from April 2016. The measures come into effect fully in 2020/21 – during the preceding three years there is a “tapered” introduction of the measures.
If you are a basic rate tax payer, then the measures won’t affect you. However, if you pay tax at 40% – and had say £10,000 of finance costs – you would, from 2020/21, have to pay an additional £2,000 in tax (£10,000 x 40%-20% restriction). The position would be worse if you were a 45% taxpayer.
We are currently advising our landlords to buy any new properties in a Limited company as the measures outlined above do not affect companies.
Existing landlords may consider transferring properties into a company – but there are Capital Gains tax and Stamp Duty issues to consider here Some landlords are fearful that the measures may make their property ownership no longer a viable proposition but, as noted above, do seek advice before doing anything – we have a saying “don’t let the tax tail wag the investment dog” and it’s important to ensure you have a clear understanding of the impact on your own circumstances before taking any action.
Want to know more…then why not come along to see us at 52 Whitegate Drive, we will be more than happy to chat over things in more detail and you may even get a steaming cup of coffee!