{"id":3301,"date":"2017-04-25T12:56:16","date_gmt":"2017-04-25T12:56:16","guid":{"rendered":"https:\/\/dev.withcreative.co.uk\/lforl\/?p=3301"},"modified":"2017-04-25T12:56:26","modified_gmt":"2017-04-25T12:56:26","slug":"feeling-skint-yet","status":"publish","type":"post","link":"https:\/\/dev.withcreative.co.uk\/lforl\/feeling-skint-yet\/","title":{"rendered":"Are you feeling skint yet?"},"content":{"rendered":"

Tax relief changes are in progress. Are you prepared?<\/p>\n

\"\"<\/a><\/p>\n

At the time of writing, it\u2019s a week since the Government\u2019s changes to mortgage tax relief allowances for landlords started to bite. Of course, you haven\u2019t noticed the hit in your pocket yet. It\u2019s when you do your tax return that the real costs will finally sink in.<\/p>\n

In the two years since the announcement, some landlords have taken drastic action and got out of the business. Others have set up limited companies and sold their properties to the new business, taking advantage of corporation tax rates but also incurring capital gains tax and paying stamp duty related to the sale and purchase. A great many landlords, confused by the changes or even unaware of them, have done nothing at all.<\/p>\n

If you\u2019re in this group, don\u2019t panic but do start to find out about the impact on your finances. Although the changes are phased in, by 2020 \u2013 and you know how time flies \u2013 you could be significantly worse off. And if you\u2019re not already in the higher-rate tax bracket, even without any increase in your gross income, you could find yourself paying tax at the 40 per cent rate.<\/p>\n

A quick summary of the changes<\/h2>\n

By 2020, the cost of a mortgage will not be deductible from your rental income when arriving at the taxable amount. Income tax will be paid on all rents received and there will be a 20 per cent tax credit applied instead.<\/p>\n

Here\u2019s how the phasing works for each tax year:<\/p>\n

2017\/18 \u2013 75% of your mortgage costs will be deductible.<\/p>\n

2018\/19 \u2013 the figure will be 50%.<\/p>\n

2019\/20 \u2013 it drops to 25%.<\/p>\n

2020\/21 \u2013 none of your mortgage costs will be deductible.<\/p>\n

 <\/p>\n

A comparison<\/h2>\n

It\u2019s easier to see the impact with some numbers. Let\u2019s imagine a buy-to-let investor who rents a mortgaged property for \u00a312k and who is also in employment with a salary of \u00a335k per annum<\/p>\n\n\n\n\n\n\n\n\n\n\n
<\/td>\n2016\/17<\/td>\n2017\/18<\/td>\n2018\/19<\/td>\n2019\/20<\/td>\n2020\/21<\/td>\n<\/tr>\n
Salary (a)<\/td>\n\u00a335,000<\/td>\n\u00a335,000<\/td>\n\u00a335,000<\/td>\n\u00a335,000<\/td>\n\u00a335,000<\/td>\n<\/tr>\n
Rental income<\/td>\n\u00a312, 000<\/td>\n\u00a312, 000<\/td>\n\u00a312, 000<\/td>\n\u00a312, 000<\/td>\n\u00a312,000<\/td>\n<\/tr>\n
Mortgage<\/td>\n\u00a38,000<\/td>\n\u00a38,000<\/td>\n\u00a38,000<\/td>\n\u00a38,000<\/td>\n\u00a38000<\/td>\n<\/tr>\n
Mortgage deductible for tax purposes<\/td>\n\u00a38,000<\/td>\n\u00a36,000<\/td>\n\u00a34,000<\/td>\n\u00a32,000<\/td>\n\u00a30<\/td>\n<\/tr>\n
Rental income liable for tax (b)<\/td>\n\u00a34,000<\/td>\n\u00a36,000<\/td>\n\u00a38,000<\/td>\n\u00a310,000<\/td>\n\u00a312,000<\/td>\n<\/tr>\n
20% tax credit<\/td>\n\u00a30<\/td>\n\u00a3 (400)<\/td>\n\u00a3 (800)<\/td>\n\u00a3 (1,200)<\/td>\n\u00a3 (1,600)<\/td>\n<\/tr>\n
Income for tax purposes (a+b-c)<\/td>\n\u00a339,000<\/td>\n\u00a340,600<\/td>\n\u00a342,200<\/td>\n\u00a343,800<\/td>\n\u00a345,400<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

The thing to notice is that taxable income increases without any there being any changes in gross earnings. In other words, you pay more tax and your net earnings are down.<\/p>\n

Steps to take<\/h2>\n

Firstly, understand your position. Talk to your accountant. Maybe you could re-mortgage to take advantage of a better rate. Transferring the property to a spouse may be an option, and there\u2019s always the limited company route. If you\u2019re treating your buy-to-let as a long-term investment the extra tax bill might not seem huge but a few hundred pounds each year soon mounts up.<\/p>\n

Perhaps the important message for all landlords is to keep your eyes on the ball, to be aware of the Government\u2019s plans and to be ready for them.<\/p>\n

 <\/p>\n

If you let property, follow our blogs to keep on top of the stories that affect you. <\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Tax relief changes are in progress. Are you prepared? At the time of writing, it\u2019s a week since the Government\u2019s changes to mortgage tax relief allowances for landlords started to bite. Of course, you haven\u2019t noticed the hit in your pocket yet. It\u2019s when you do your tax return that the real costs will finally […]<\/p>\n","protected":false},"author":2,"featured_media":11204,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[3],"tags":[],"yoast_head":"\nAre you feeling skint yet? - Legal For Landlords<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/dev.withcreative.co.uk\/lforl\/feeling-skint-yet\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Are you feeling skint yet? - Legal For Landlords\" \/>\n<meta property=\"og:description\" content=\"Tax relief changes are in progress. Are you prepared? At the time of writing, it\u2019s a week since the Government\u2019s changes to mortgage tax relief allowances for landlords started to bite. 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