Landlords - are you aware of the upcoming tax changes?
From 6 April 2020, tax relief for finance costs will be restricted to the basic rate of income tax, currently 20%.
Relief will be given as a reduction in tax liability instead of a reduction to taxable rental income.
Up until the 2016/17 tax year, landlords could deduct mortgage interest and other allowable costs from their rental income, before calculating their tax liability. The changes started to be phased in from April 2017.
The changes mean that the basic rate taxpayers could find themselves pushed into a higher rate band as a result.
Other allowable costs, on an actual cost basis, can still be deducted from gross rental income for the purposes of determining taxable income.
Those impacted the most are;
• Existing higher rate tax payers (40% and 45%)
• Landlords with marginal rental cover (high mortgage costs relative to rental income)
• Tax payers moving into the higher rate tax band as a result of the changes
• Landlords with strong rental cover.
There is no impact on tax liability for landlords who remain as zero or basic rate payers, after calculating taxable income under the new rules.
Unencumbered landlords are also unaffected.
Tax information is based on our understanding of the tax legislation as at 13 September 2019, and may be subject to change.
This should not be taken as tax advice. For advice please consult with an independent tax adviser.
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Willow Tree Financial Services 01323 436680