New BTL Taxation

fcjf · 21 October 2016 at 3:10PM

We (Wife and I) have a number of BTL properties. I am a HRT payer but my wife only has a £15,000 self-employed net income. We are currently looking at using Form 17 combined with a Deed of Trust to change the current ratio of ownership of some of the properties to maximise my wife’s allocation & income up to just below the 40% income tax band to help offset the impact of the upcoming changes in BTL taxation. When looking at the variables of ownership ratio’s, in order to ensure that she maintains the 20% tax bracket for all taxable income do we use the Mortgage Interest Tax Credit before or after the £43,000 cut off e.g.
Net SE income £15,000 + BTL income - deductible expenses £31,000 = £46,000 - £3,000 Mortgage Interest Tax Credit = £43,000 taxable income
Or
Net SE income £15,000 + BTL income - deductible expenses £28,000 = £43,000 - £2,700 Mortgage Interest Tax Credit = £40,300 taxable income.
I don’t see why it shouldn’t be the first option but not sure whether the taxable income before deducting the mortgage interest tax credit being above £43K has any impact?
The figures are based on the 2020-21 rules.

Cook_County · 21 October 2016 at 7:27PM

Given the level of profits, the UK tax might be considerably lower if you incorporate.

uknick · 22 October 2016 at 2:22PM

The CGT and SDLT upon transfer to a Ltd may offset any IT savings.

http://www.telegraph.co.uk/investing/buy-to-let/im-a-buy-to-let-investor--could-i-pay-less-tax-by-setting-up-a-l/

anselld · 22 October 2016 at 4:37PM

fcjf wrote: »

We (Wife and I) have a number of BTL properties. I am a HRT payer but my wife only has a £15,000 self-employed net income. We are currently looking at using Form 17 combined with a Deed of Trust to change the current ratio of ownership of some of the properties to maximise my wife’s allocation & income up to just below the 40% income tax band to help offset the impact of the upcoming changes in BTL taxation. When looking at the variables of ownership ratio’s, in order to ensure that she maintains the 20% tax bracket for all taxable income do we use the Mortgage Interest Tax Credit before or after the £43,000 cut off e.g.
Net SE income £15,000 + BTL income - deductible expenses £31,000 = £46,000 - £3,000 Mortgage Interest Tax Credit = £43,000 taxable income
Or
Net SE income £15,000 + BTL income - deductible expenses £28,000 = £43,000 - £2,700 Mortgage Interest Tax Credit = £40,300 taxable income.
I don’t see why it shouldn’t be the first option but not sure whether the taxable income before deducting the mortgage interest tax credit being above £43K has any impact?
The figures are based on the 2020-21 rules.

It is the latter.
However you will find it difficult to optimise since the figures will change every year and the tax changes are phased in gradually over a few years.
It may be better to increase her share so that she is also higher rate and then you are sure that both of you have used up the full standard rate band.

fcjf · 22 October 2016 at 7:39PM

Given the level of profits, the UK tax might be considerably lower if you incorporate.

The CGT and SDLT upon transfer to a Ltd may offset any IT savings

It would by some margin so we're not considering incorporating.

It is the latter.
However you will find it difficult to optimise since the figures will change every year and the tax changes are phased in gradually over a few years.
It may be better to increase her share so that she is also higher rate and then you are sure that both of you have used up the full standard rate band

Thank you. I've modelled a few scenarios factoring in future CGT cost increases, costs of re adjusting the ratios before selling, loss of £1000 tax free interest etc and you may well be right that if we maximise now then we will gain over the next 3 years before the full extent of the tax changes are in place and then will ensure we fill out both 20% bands. Alternatively I have been making pension contributions into my SIPP to reduce tax and I could change this to my wife's pension to get her just below the £43000 taxable pay. Lots to think about. If I get it right the tax increase from our current position in 2021 could be as little as £400 which isn't too bad

anselld · 22 October 2016 at 9:40PM

fcjf wrote: »

It would by some margin so we're not considering incorporating.

Thank you. I've modelled a few scenarios factoring in future CGT cost increases, costs of re adjusting the ratios before selling, loss of £1000 tax free interest etc and you may well be right that if we maximise now then we will gain over the next 3 years before the full extent of the tax changes are in place and then will ensure we fill out both 20% bands. Alternatively I have been making pension contributions into my SIPP to reduce tax and I could change this to my wife's pension to get her just below the £43000 taxable pay. Lots to think about. If I get it right the tax increase from our current position in 2021 could be as little as £400 which isn't too bad

There are certainly benefits of adjusting with pension contributions.
You can do so for each individual at the end of the tax year with a one-off contribution when you know for sure the exact figures.

Compare that with trying to optimise percentage shares where there is a legal cost for a new deed and it must be done in advance of the relevant earnings taking place. Very difficult to predict!

agrinnall · 26 October 2016 at 5:23PM

chocaholics wrote: »

Can anyone put an approx CGT ON BTL 150k gain...

Please start your own thread.

New BTL Taxation

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