17/06/2017
Will the new tax relief changes affect you as a landlord?
Previously, landlords could deduct mortgage interest and other allowable costs from their rental income, before calculating their tax liability.
Recently in April 2017 the new tax relief changes started to come into force. Now tax is due on profits at your highest rate of income tax. Over the next four years between 2017 and 2020 this system will be replaced. All landlords will pay tax on the full amount less tax relief fixed at 20pc by 2020.
These changes mean that basic rate tax payers could find themselves pushed into the higher tax bracket.
See example below:
Before April 2017
Greg is an experienced landlord with a portfolio of six properties.
Annually his rental income from all six properties totals
£60,000, his running costs are £12,000 and his mortgage
Payments are £24,000, giving him a gross profit of £24,000.
Greg also has a employment income of £15,000 per year.
Currently Greg pays 20 percent on his rental profits of £24,000. A total of £4,800 leaving Greg with £19,200.
By 2020.
Greg will be taxed on his total income minus running costs of 48000. However he will be entitled to mortgage interest relief at 20% which amounts to 4800.
Greg's tax broken down
£0-£11500 = £0
£11501-£45000 = £6400
£45001-150000 = 8000
Total = £14400 after deducting his mortgage relief of £4400 and the £800 already paid from his employment Greg’s total tax bill is £8800
Profit under the new legislation stands at:
£15,200
A reduction of £3000 per year!
Higher rate and additional rate tax payers will pay more in tax, as relief on mortgage interest will be that of the basic rate tax payer at 20%.
Add the additional stamp duty for anyone owning a second home introduced the April previous to this one (2016), the squeeze is really on landlords to find ways to continue to offer a high level of service and of course keep the balance sheet healthy.
How can we help you?
One solution, of course, may be to increase rents so that the extra cost is passed on to tenants - but this solution is far from ideal.
But as most tenants are already paying as much as they can afford you may price yourself out of the market.
We want to keep the rental bubble booming, helping tenants find good affordable housing and also help landlords maximise their potential profits. We at quick rent it will always command the top rental yields for you property in line with current market values.
We as a letting agent are offering a 3 year fully managed change over scheme that will help soften the blow of the new tax legislation, offering you cash back through your monthly management fees. By choosing to come on board with us to fully manage your property/properties.
See our graph fees below and see how we can help maximise your profits. Multiple property portfolios may be subject to further discounts.
If you think we can help you please don't hesitate to give us a call to discuss your personal circumstances on 01933 717069 or Email us at [email protected]
