I trust you have had an excellent Christmas and New Year and have caught up on some much-needed rest...as have I! :-) As we enter a New Year, it gives us an opportunity to think about how we want to move forward in our ventures. No doubt you will have been reflecting during the festive season on the past year and what changes you would like to make into 2016. With so many changes occurring within the property business, it pays to keep up and plan ahead so that you stay on top of your game. In this month's article, I wanted to discuss one topic which is of particular importance to us as landlords. With the Summer Budget announcement about the new landlord tax implications in the Finance Bill having been confirmed in the latest Autumn Statement, it is definitely time to think about planning ahead in terms of how to work with and potentially grow your portfolio from here. It has certainly been the hot topic of conversation here at Why Property Works over the last few months, so much so that I have been working on how to get the message out in a clear, concise way to best help you to get a grip on how this change will affect you going forward. Essentially, the changes coming in will be phased in over the next four years until 2020. The main impacts to your tax affairs will be as follows:
- Mortgage Interest Relief (MIR) for higher rate tax payers will be reduced to just 20% (not the current relief of 40-45% for those paying a higher amount of tax).
- This relief will now come in the form of a tax rebate, rather than be allowed against gross rent before tax is paid.
- Currently, tax is paid net of all expenses, including mortgage interest payments. By 2020, tax will be paid on gross rent after normal running costs, but before mortgage interest payments. A rebate to the tune of the basic rate tax level of 20% will then be given on any mortgage interest payments made.
- The main impact this could have if you are currently a lower rate tax payer (and if you are earning close to the limit either from PAYE, self-employed or property income, etc) would be to 'push' you into the higher-rate tax bracket.