Changes to the way property income is taxed
Over the last 5 years or so there have been many changes to the way profits on property income is taxed. Major changes have been to the treatment of mortgage interest, and the removal of the wear and tear allowance for furnished property.
Here’s a quick look at how these changes have affected Landlords in more ways than perhaps was first realised.
Mortgage (or more technically Finance) interest is no longer an allowable expense. Instead it is claimed as an allowance at a maximum rate of 20%. The first effect of this is that higher rate taxpayers now get far less tax relief than they used to. The result is more tax to pay.
But it may still affect you if you are a basic rate taxpayer. As the interest is no longer an expense, your profits, for tax purposes, are higher than they were. This could push your income into a higher tax band. And if you are claiming child benefit it could mean you now have an income of over £50,000 and your benefit will be restricted.
It is now more important than ever to get the ownership of jointly owned property into the right balance to minimise your tax liability.
Wear and Tear
The loss of the wear and tear allowance also means profits will be higher than they were. Claiming for furnishings is also a little more complicated than you might think, and the rules are quite strict. It is important to understand what you can claim for and what you can’t.
How I can help
I got together with Pippa Baillie-White, owner of Baillie White Lettings and Management, a fellow Benfleet based business helping Landlords and Tenants in the local area. We discussed the Top Tax Tips for Landlords, and the Common Mistakes made on Self-Assessment returns.
Plus, we have summarised the video in a free downloadable document.
I also offer a self-assessment check for Landlords completing their own returns. This provides peace of mind for you that your return is correct, and I will check for any potential tax savings that may be available.
Or, to take the stress of all those numbers away, and give you the freedom to do better things with your time, I can complete your tax return for you.
If you would like to know more, please click here for details on my self-assessment service.