01273765960 mail@nlfm.co.uk

One more twist on buy to let

7th March 2019

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

One more twist on buy to let

 

When George Osborne announced in his summer 2015 Budget a variety of tax changes aimed at discouraging buy-to-let (BTL) 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 BTL 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 arcane, 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 BTL mortgage of £8,000. The investors’ net income position is as follows:

Tax Year

£

Rent

£

Interest

£

Rent – Interest

£

Tax Due

£

Net Income

£

2016/17

12,000

8,000

4,000

(1,600)

2,400

2017/18

12,000

8,000

4,000

(2,000)

2,000

2018/19

12,000

8,000

4,000

(2,400)

1,600

2019/20

12,000

8,000

4,000

(2,800)

1,200

2020/21

12,000

8,000

4,000

(3,200)

800

 

In practice, the situation might be worse than the table suggests if, for example, the disappearance of the deduction for interest increases the investor’s gross income to the point that it trips over the £100,000 threshold, at which the personal allowance is phased out.

Sales by BTL 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.

If you are a BTL investor and are considering leaving the market, please talk to us about your options, on both the tax planning and reinvestment fronts.

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. 

If you want to discuss your position, please contact our team on 01273 765960 or email mail@nlfm.co.uk

 

Chartered Financial Planner | North Laine Financial Management Limited | Brighton

This is the industry’s gold standard for firms of financial planners. When you use a Chartered firm you are dealing with proven professionals. 
Only the UK’s premier financial planning firms qualify for Chartered status. 

North Laine Financial Management Ltd is authorised and regulated by the Financial Conduct Authority. Financial Services Register No: 446522 http://www.fca.org.uk/register.

North Laine Financial Management Ltd Registered Address: West Wing, 47 Old Steine, Brighton, BN1 1NW. Registered in England & Wales, No. 5072423.

Neither North Laine Financial Management Ltd nor its representatives can be held responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

The Financial Conduct Authority does not regulate National Savings or some forms of mortgage, tax planning, taxation and trust advice, offshore investments or school fees planning.

The Financial Ombudsman Service (FOS) is an agency for arbitrating on unresolved complaints between regulated firms and their clients. Full details of the FOS can be found on its website at www.financial-ombudsman.org.uk

The information contained within this site is subject to the UK regulatory regime and is therefore targeted primarily at consumers based in the UK.

Please read our Privacy Statement before completing any enquiry form or before sending an email to us.