THE TENANT TAX - WHAT IS IT EXACTLY?
Section 24, otherwise known as the Tenant Tax, was introduced in its first phase in April 2017 and will roll out even more heavily in 2020. It basically means you that you are no longer able to claim mortgage interest, or any other property finance, as tax deductible.
WHAT - MORE TAX?
If you have any kind of loan or mortgage interest on your buy to-let property, then you will now start to pay more tax on those costs - as well as your rental profit. Some have estimated that this could land them with a tax bill in excess of £2000 per year.
DO YOUR SUMS
Some landlords could even end up out of pocket.
So say you charge a monthly rent of £2500 and have a mortgage of £2000, the profit totals £500. But with a tax bill at 40% of £2,500 equalling £1000, now the landlord loses £500 per month.
SO WHAT CAN YOU DO?
FOUR WAYS TO BEAT THE TENANT TAX:
1. Get some good tax advice.
An absolute must. It’s a complicated business and we have expert financial advisors who can help guide landlords through the rules and regulations and take away all the stress. Come and see us today and let us do all the hard work for you.
2. Share the love and reduce your tax bill.
In 2020, tax relief on mortgage interest will be replaced by a 20pc tax credit, leaving basic-rate taxpayers largely unaffected. So bringing your income below the higher-rate threshold could drastically lessen the impact.
Married landlords could mitigate their tax liability by re-structuring their borrowing. A landlord who is a higher-rate (40pc) taxpayer and who is married to someone paying the basic rate of 20pc or no tax at all could transfer the majority of the mortgage payments to their spouse. This would allow them to make use of both personal allowances and reduce their tax bill.
3. Spend money on your property and off-set the expenses.
Instead of just handing your money to the tax man, spend the money on your property. Give the property a proper paint job, invest in some new furniture. These are tax deductible improvements, which if you need to raise rents can help justify the higher cost.
4. Buy in a limited company, using a company bank account.
You still pay the additional stamp duty and also corporation tax currently at 19%.
The main benefit here is that you can offset your mortgage payments. You will still be taxed on the dividends if you take profits out of the company, but you can control the dividend payouts, or distribute them to family members who are lower rate taxpayers – or just leave the profits to accumulate within the company to buy the next property.
Need more help? Come to us, we all have all the advisors to hand.
We are proud to have recently been ranked one of the top 3% of estate agents in the U.K and now feature in the Best Estate Agent Guide. You will be in safe hands.