2016 ONWARDS RENTAL PROPERTY TAX CHANGES
We like to keep things simple but tax changes can be a big test even for us. See what you think and please give us feedback, it might not be bed time reading but it is really important stuff that impacts the financial rewards you can have.
A BIG change to Rental property income and examples of how the restriction of relief on buy to let mortgage interest will affect landlords.
By now I am sure you are all aware of the buy to let “bombshell” within the Chancellor’s Summer Budget – the proposal to allow income tax relief on BTL finance costs at the basic rate of tax only – but I thought it might be helpful to show how this will affect the net (after tax) returns to landlords.
At this stage this is just a “Policy Paper” and I am sure there will be considerable debate with interested parties before this is implemented. However, for now we have to assume that it will be implemented as proposed starting in 2017/18.
So the good news is that until April 2017 there is no change in the buy to let mortgage interest relief although a separate measure will get rid of the 10% “Wear and Tear” tax allowance for furnished lettings with effect from April 2016.
In looking at the impact of the proposals for interest relief I shall consider only the situation once the proposed measures come into effect fully in 2020/21 – during the preceding three years there is a “tapered” introduction of the measures. For the sake of easy arithmetic I shall assume that in 2020/21 the personal tax allowance is £12,000 and the basic rate band is £38,000, meaning that the higher rate band starts at £50,000.
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