Reply to: New budget and BLT

[ContrataxLtd]

Many thanks again... is it not the summer now?? lol do you mean next summer?

Well it is sunny outside so I suppose this could be classed as summer, I keep forgetting we are actually in July now!

What I should have said was the technical document will probably be released in the next couple of months.

Martin
Contratax Ltd

[SandyD]

The technical consultation will be released in the summer. I believe that the wear & tear allowance will be removed and a mechanism brought in to obtain tax relief on the replacement of furnishings to supposedly encourage landlords to replace them more often and thus increase the standard of rented accommodation (probably more wishful thinking by the government).

No change to unfurnished properties as far as I'm aware.

As with all things in the recent budget, we've got to wait until all the detail is released to advise fully on it's impact.

Martin
Contratax Ltd

Many thanks again... is it not the summer now?? lol do you mean next summer?

[ContrataxLtd]

Thanks Martin, this is further bad news for me !
What is the situation regarding unfurnished? I don't think I have that option in the area I am investing in, but would be good to see the trend.

The technical consultation will be released in the summer. I believe that the wear & tear allowance will be removed and a mechanism brought in to obtain tax relief on the replacement of furnishings to supposedly encourage landlords to replace them more often and thus increase the standard of rented accommodation (probably more wishful thinking by the government).

No change to unfurnished properties as far as I'm aware.

As with all things in the recent budget, we've got to wait until all the detail is released to advise fully on it's impact.

Martin
Contratax Ltd

[SandyD]

Thanks Martin, this is further bad news for me !
What is the situation regarding unfurnished? I don't think I have that option in the area I am investing in, but would be good to see the trend.

[ContrataxLtd]

Thanks, but what about other costs not relating to the mortgage/financing of the property, e.g. maintenance/repairs, furnishing, bill payments etc?

Hi Sandy

As far as I'm aware, the only other major change to expenses is the removal of the wear and tear allowance on furnished rentals. I believe more detail on this will be released in the summer.

Martin
Contratax Ltd

[SandyD]

In response to this thread, the changes to BTL are as follows:

The government will restrict the amount of income tax relief landlords can get on residential property finance costs to the basic rate of income tax. Finance costs include mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

Landlords will no longer be able to deduct all of their finance costs from their property income. They will instead receive a basic rate reduction from their income tax liability for their finance costs. To give landlords time to adjust, the government will introduce this change gradually from April 2017, over four years.

The restriction in the relief will be phased in as follows:

• in 2017/18, the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
• in 2018/19, 50% finance costs deduction and 50% given as a basic rate tax reduction
• in 2019/20, 25% finance costs deduction and 75% given as a basic rate tax reduction
• from 2020/21, all financing costs incurred by a landlord will be given as a basic rate tax reduction.

This restriction will not apply to landlords of furnished holiday lettings.

At the moment I'm not entirely sure how the tax reduction will work and whether it will be available against any tax due on the rental or against total tax. The later sounds quite generous but I'm thinking it will be the former which means high rate tax payers with rental properties making a loss could be significantly worse off it the tax reducer isn't available to carry forward.

Martin
Contratax Ltd

Thanks, but what about other costs not relating to the mortgage/financing of the property, e.g. maintenance/repairs, furnishing, bill payments etc?

[SandyD]

Please can someone fix the title, it's driving me mad not being able to make a joke reply in the serious forums!

Looool, just noticed the mistake

[d000hg]

Please can someone fix the title, it's driving me mad not being able to make a joke reply in the serious forums!

[ContrataxLtd]

Talk about effing complicated - so... during the transition period, a percentage of the total interest, which is a percentage of the outstanding finance - anyway, where was I, yes a certain percentage of the interest will be at the marginal percentage tax rate, while the remaining percentage will be at a twenty percent rate.

That's right, a percentage will be at marginal tax rates (just like it all is now) and a percentage will be at 20% but the devil will be in the detail as to just how the 20% tax reducer will work.

Simplifying things they have not!

Martin
Contratax Ltd

[Goatfell]

Interesting article in the Telegraph, it indicates that forming a LTD could be a way forward now?

[centurian]

In response to this thread, the changes to BTL are as follows:

The government will restrict the amount of income tax relief landlords can get on residential property finance costs to the basic rate of income tax. Finance costs include mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

Landlords will no longer be able to deduct all of their finance costs from their property income. They will instead receive a basic rate reduction from their income tax liability for their finance costs. To give landlords time to adjust, the government will introduce this change gradually from April 2017, over four years.

The restriction in the relief will be phased in as follows:

• in 2017/18, the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
• in 2018/19, 50% finance costs deduction and 50% given as a basic rate tax reduction
• in 2019/20, 25% finance costs deduction and 75% given as a basic rate tax reduction
• from 2020/21, all financing costs incurred by a landlord will be given as a basic rate tax reduction.

This restriction will not apply to landlords of furnished holiday lettings.

At the moment I'm not entirely sure how the tax reduction will work and whether it will be available against any tax due on the rental or against total tax. The later sounds quite generous but I'm thinking it will be the former which means high rate tax payers with rental properties making a loss could be significantly worse off it the tax reducer isn't available to carry forward.

Martin
Contratax Ltd

Talk about effing complicated - so... during the transition period, a percentage of the total interest, which is a percentage of the outstanding finance - anyway, where was I, yes a certain percentage of the interest will be at the marginal percentage tax rate, while the remaining percentage will be at a twenty percent rate.

[ContrataxLtd]

Phased Reduction

In response to this thread, the changes to BTL are as follows:

The government will restrict the amount of income tax relief landlords can get on residential property finance costs to the basic rate of income tax. Finance costs include mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

Landlords will no longer be able to deduct all of their finance costs from their property income. They will instead receive a basic rate reduction from their income tax liability for their finance costs. To give landlords time to adjust, the government will introduce this change gradually from April 2017, over four years.

The restriction in the relief will be phased in as follows:

• in 2017/18, the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
• in 2018/19, 50% finance costs deduction and 50% given as a basic rate tax reduction
• in 2019/20, 25% finance costs deduction and 75% given as a basic rate tax reduction
• from 2020/21, all financing costs incurred by a landlord will be given as a basic rate tax reduction.

This restriction will not apply to landlords of furnished holiday lettings.

At the moment I'm not entirely sure how the tax reduction will work and whether it will be available against any tax due on the rental or against total tax. The later sounds quite generous but I'm thinking it will be the former which means high rate tax payers with rental properties making a loss could be significantly worse off it the tax reducer isn't available to carry forward.

Martin
Contratax Ltd

[bracken]

Can someone explain.. example

Contractor has property that generate 20K pa rental income

Offset income against:
Interest on mortgage £1000 per month (12 K pa)
Other rental expenses (agency fees, maintenance etc)

How would this change in the new budget??

I can't help with the question but I will definitely be having a Bacon Lettuce and Tomato sarnie for tea tonight...

B

[centurian]

If you own the property outright then you wont be needing to offset the rental income, i.e. you will be paying tax on the whole of the income.

Correct, but that's how things already stand at the moment - the budget hasn't made things any worse for unfurnished cash-only purchase landlords.

In fact, it will give them a competitive advantage for setting rent levels against those who have heavily leveraged.

[SandyD]

But it's gonna mean paying more in tax for BTL landlords unless
a) You are a basic rate taxpayer
b) You own the rental property outright and do not furnish it.

If you own the property outright then you wont be needing to offset the rental income, i.e. you will be paying tax on the whole of the income.