Reconsider the new Dividend Tax for small businesses - Gouvernment Petition
You don't understand do you? Landlords already pay tax on their net rental income at 20/40/45% - what is changing is the amount of interest costs that can be offset against your costs and so affect the taxable profit.
The eventual plan is to restrict tax relief on interest costs to 20% as opposed to your marginal rate, which could be upto 40/45% depending upon your tax band.
Let's take an example of gross rental income of £30,000 (not your typical landlord), take off maintenance, insurance costs of let's say £5,000 and interest costs of £18,000 leaves taxable profits of £7,000.
Tax paid on this currently would be 20/40/45% being £1,400/£2,800/£3,150
The new proposals will restrict tax relief in the interest to 20%, so no change for basic rate taxpayers, most pensioners would fall into this category.
For other taxpayers the taxable profit will rise by the disallowed portion of interest relief. For 40% taxpayers this would be £3,600 giving tax paid of £6,400.
For 45% taxpayers, the taxable profit would increase by £4,500 giving tax paid of £7,650.
Now imagine interest rates doubling, this would hurt the business far more, but many buy to let landlords have not factored this into their business models, if they have one! Interest rates will increase, it's just a matter of when.
Originally posted by AtW
View Post
The eventual plan is to restrict tax relief on interest costs to 20% as opposed to your marginal rate, which could be upto 40/45% depending upon your tax band.
Let's take an example of gross rental income of £30,000 (not your typical landlord), take off maintenance, insurance costs of let's say £5,000 and interest costs of £18,000 leaves taxable profits of £7,000.
Tax paid on this currently would be 20/40/45% being £1,400/£2,800/£3,150
The new proposals will restrict tax relief in the interest to 20%, so no change for basic rate taxpayers, most pensioners would fall into this category.
For other taxpayers the taxable profit will rise by the disallowed portion of interest relief. For 40% taxpayers this would be £3,600 giving tax paid of £6,400.
For 45% taxpayers, the taxable profit would increase by £4,500 giving tax paid of £7,650.
Now imagine interest rates doubling, this would hurt the business far more, but many buy to let landlords have not factored this into their business models, if they have one! Interest rates will increase, it's just a matter of when.
Comment