Landlords: UK Property Tax Relief Changes and How to Get Prepared | Discuss

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Landlords: UK Property Tax Relief Changes and How to Get Prepared
22/11/2016
9:18 am
accountsandlegal
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In an effort to curb the current trend of rising rental prices, the British government have decided to make some changes to tax relief. The premise is that this would reduce the cost of renting or buying in areas such as London, and allow more people to be able to realise the dream of purchasing their first home. As rosy as this sounds, if you are currently a landlord or planning on delving into the property market, this might change your strategy.

Firstly, the changes come into effect on 6 April 2017. This would mean that landlords won’t be able to escape higher rate tax relief on mortgage interest and other finance costs. Notably, the changes (more on them below) will be phased in over three years in order to give landlords time to adjust.

The changes

From the 6th of April 2017 onwards, finance costs are being phased out as an allowable expense for calculating taxable rental profits. Just so you are well informed, the following costs are no longer an allowable expense:

- Mortgage interest

- Legal expenses

- Costs of obtaining finance

- Valuation fees for loan security

The changes will impact most landlords (exceptions below).

Individuals with rental businesses will be most affected. These rules don’t apply to companies and commercial or residential property development businesses.

Since these are major changes, this is likely to change the tax bracket of some landlords. For instance, rental profits calculation will go up, thereby increasing total income. Financial circumstances differ but couples who claim tax credits or child benefit might be affected as they can see payments reduce.

Phased launch

Fortunately, the tax relief changes take place over three years. The percentage of costs available as a basic tax reduction will increase by 25% each year between the 2017/18 tax season and 2020/21. Secondly, the percentage of costs deducted from profits will reduce by 25% each year between the 2017/2018 to 2020/21 tax year.

Exceptions

There are some exceptions:

1) Landlords who have property profits less than the cost of financing will pay a maximum of 20%.

2) Landlords with a low total income so that the rental income is in the personal allowance range won’t pay more than 20%.

Next step

Depending on your financial situation, you might not be affected or even profit from the new, sweeping changes. However, due to the complexity and importance of this change it is worth consulting an accountant and/or finance lawyer. They will be able to give you tailored advice on how to get an advantage. Moreover, they will be able to advise you after taking your property strategy into account. There is a chance that your strategy would need to be adjusted.

23/11/2016
10:38 am
johnta7
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 Possibly the worst written and most confusing explanation of the S24 implications I have yet seen.

23/11/2016
10:12 pm
David Price
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johnta7 said
 Possibly the worst written and most confusing explanation of the S24 implications I have yet seen.

Perhaps this is because S24 is confusing in itself, so confusing that even the experts often get it wrong.  Please do not knock those who are attempting to explain the situation.

24/11/2016
10:28 am
johnta7
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Sorry David, but the above post is a prime example of how uninformed and poorly written "explanations" lead to the very confusion you state exists. Nobody could possibly be helped to understand S24 based on that drivel, obviously posted by someone who isn't a UK taxpayer (the references to "the British Government" and "London", for example).

S24 isn't that confusing. In fact it's quite straightforward. I don't see any evidence that "even the experts get it wrong" .

Cheers,

John

24/11/2016
11:57 am
elvisLives
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Bit harsh IMHO.

Yep it's not the easiest "layman speak" version but it's clear enough given the complexity of the matter.

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