Do you let out a property?
I come across many clients who need help in dealing with the tax affairs of a property they let out. Over the past year, taxation in this area has changed considerably, and further changes are planned: Are you aware of everything?
Until next April, the interest paid on any loan against the property is an allowable expense when calculating the taxable rental profits. But from 2017/18 higher rate taxpayers will start to have this restricted. Current basic rate tax payers, may also be affected if their rental income pushes them over the higher rate tax bracket.
This restriction is being phased in over four tax years, starting from April 2017.
By 2020 some taxpayers might be liable to pay more in tax than the actual profit from renting out the property!
If you rent out a property with a mortgage on it and you are close to or exceeding the higher rate tax bracket we can prepare estimated calculations to give you an idea of your future tax position.
Is there something you can do to mitigate this increased tax liability? Can you transfer part of the property to your spouse? Is it worth setting up your own company to transfer the property to? We can explore the tax position of potential options for you.
You might decide to sell your property. If you do this you need to consider the capital gain tax (CGT) position. The CGT rate is currently 18% for basic rate tax payers and 28% for higher rate tax payers. When working out the gain, you need to take into account any reliefs available, particularly if you ever lived in the property. We are happy to help with the calculation to ensure the gain is accurate.
Wear and tear allowance
Since 6th April 2016 the wear and tear allowance has been scrapped by the government. In the past landlords could claim 10% of the rent for their furnished properties and offset this against the rental profits, instead of the cost of replacing furniture and fixtures.
Remortgaging your rental property
If you increase the level of your mortgage to a value greater than the property when you purchased it, you may not be able to claim all interest payable on the mortgage, as an expense against rental income.
You can never claim back any capital repayments on a mortgage against the rental income for a buy-to-let property.
Rent a room relief
Rent-a-room relief has increased to £7,500 from £4,250. This relief is for anyone who rents a room in your only or main residential property. This includes having a lodger or offering bed and breakfast to paying guests.