If you’re a residential landlord, then you’re probably already struggling to keep up with all the rules and regulations that you are obliged to comply with. No sooner do you get used to one, than another one comes along. As accountants we know how difficult full compliance can be, particularly in relation to tax. Ideally we’d like to be able to reassure you and tell you that there are no new impending tax changes in the pipeline, but sadly we can’t.
All we can do is tell you when changes are going to be introduced, what they are and how they might affect you. So, this is the latest news to come out of HM Revenues & Customs: HMRC has published new guidance for residential landlords about the changes to tax relief that will be introduced next year, in which relief for finance costs will be restricted to the basic rate of income tax.
What are the changes?
The changes we, and the new guidance refer to, are due to come into effect from April 2017. The good news is they will not be introduced en bloc, but will be phased in over a period of four years. During this transitional stage will be phased in over a four-year period. The good news is that during the transitional phase, landlords will still be able to deduct/offset some of their finance costs when determining taxable property profits. However, after the income tax on property profits and any other income sources has been assessed, a landlord’s income tax liability will then be reduced by a basic rate ‘tax reduction’.
Who will the new rules apply to?
Well, they are applicable to all UK residents who let residential property either in the UK or abroad, non-UK residents who let residential property in the UK, individuals who let properties in partnership, and trustees or beneficiaries of trusts liable for income tax on property profits.
Who will not be affected?
The only residential landlords who won’t be affected by the tax relief changes are landlords of furnished holiday lettings, UK-based companies and non-UK based companies.
What are the changes?
Under the new regulations, relief for residential landlords’ finance costs will be restricted to just interest on mortgages, loans,[for instance to purchase furnishings] overdrafts, alternative finance returns, fees and additional incidental costs for securing or repaying mortgages and loans and discounts, premiums and disguised interest.
Explaining the new phased introduction of the finance costs relief scheme, HMRC has advised the following:
- Landlords can still deduct 75 per cent of finance costs from rental income in 2017-18, using a 25 per cent basic rate tax deduction.
- In 2018-19 this will be reduced to 50 per cent finance costs deduction and 50 per cent basic rate tax reduction.
- In 2019-2020 this will be reduced to 25 per cent finance costs deduction and 75 per cent basic rate tax reduction, followed by;
- 100 per cent basic rate tax reduction by 2020-21.
The important thing to note is that there could also be other tax implications for certain landlords, particularly if they are receiving child benefit.
Further information on the finance costs relief changes can be found on the GOV.UK website.
Alternatively, if you would like further clarification on the finance costs relief changes, then speak to Steven Glicher accountants. We can deal with all matters, from registration to calculation of your income and completion of your returns. We can also liaise with HMRC on your behalf and deal with any necessary correspondence. We can even review your affairs and ensure that you are trading using the right structure, whilst claiming all the expenses you’re entitled to. For further information call Steven Glicher accountants on 0161 485 8007 or email firstname.lastname@example.org.