Following George Osborne’s announcement in 2015 of the buy to-let tax relief changes, what once seemed like years away is now right around the corner. Britain’s landlords are now faced with serious changes in tax implications commencing from April 2017, potentially forcing many into a significantly higher income tax bracket.
Up until now, landlords have been able to offset their mortgage interest against income tax. And rightly so, so we thought. In a nutshell, landlords were only required to pay tax based on the profit they accumulated from rental income once mortgage payments had been made. However, landlords are now required to pay tax on their entire rental revenue between 2017-2020, facing a 20% tax credit, resulting in many landlords being forced to sell up and say goodbye to the buy to let property market.
Every mortgaged landlord currently paying between 40-45% tax will end up paying much more, including basic-rate taxpayers too. Ultimately, those impacted by the change in tax will be pushed into a higher-rate tax bracket. However, both limited companies and the small percentage of landlords without mortgages will remain unstirred.
Those who are worst affected will see:
Our advice specialises in finding the best possible direction to head down for all situations faced in the current but constantly evolving property market. A potential and quite sought after solution to this drastic change is for landlords to now switch their property to a HMO, where they are then able to increase their rental income, ultimately leaving them with more profit after tax.
For more help, information and advice to prepare you for the upcoming months, feel free to contact us!