One more twist on buy to let

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Buy to let investors will be hit by another notch up of the tax ratchet. 

When George Osborne announced in his summer 2015 Budget, a variety of tax changes aimed at discouraging buy to let investment, they came as a surprise. To ease their impact, the then Chancellor phased in the most significant reform, a revised treatment of interest relief, over four years and deferred its start date to April 2017. Anecdotal evidence suggests some buy to let investors did not know what had happened until they found a larger than expected tax bill in January.

April 2019 will see the start of the third year of the phasing process, which will mean in 2019/20:

•    Three quarters of any interest paid on BTL borrowing will be eligible for a 20% tax credit; and
•    The balance of interest is deductible from rental income, meaning it is fully tax relievable.

If that all sounds rather unclear, the impact becomes more obvious when you look at a simplified example. Suppose a higher rate taxpayer had rental income of £12,000 and interest on a buy to let mortgage of £8,000. The investors’ net income position is as follows:

In practice, the situation might be worse if any changes increase an investors gross annual income over the £100,000 threshold, as that would start to reduce your personal tax-free allowance.

Sales by buy to let investors could pick up this year due to the interest relief changes and poor short-term prospects for capital growth. There is another tax incentive to sell on the horizon too. From April 2020, capital gains tax on residential property (at 18% and/or 28%) will have to be paid within 30 days of sale, whereas the current rules effectively give a minimum of nearly ten months’ grace.

I would emphasise the importance of landlords being aware of the future tax implications and consider that when calculating future buy to let yields.

If you’d like to know more about buy to let mortgages, please do get in touch and I would be happy to discuss your options and requirements.

The value of tax reliefs depends on your individual circumstances.

Tax laws can change.

The Financial Conduct Authority does not regulate tax advice.

The value of your investment can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.





Simon Morgan – Latest Blog Posts

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