New Landlord Tax Changes, Please Advise

ASutton

Hi Everyone

I was shocked to hear today that within the new budget the chancellor will be taxing landlords on their revenue, not on their profits.

I understand that this doesn't massively effect the lower rate tax payer because of the 20% credit on the existing loan amount.

My problem and question is;

I currently have 3 properties I was hoping to use as a pension and currently pay 20% tax on around 9k profit. This in addition to my limited company income, which is a 31k dividend. My revenue for the properties are 18k per year. Does this mean my earnings will increase to 49k and become subject of higher rate tax?

Can anyone offer any advice on how to best manage this income. These properties have gone from being an asset to a hindrance under these potential new rules. I don't see any of the 9k from the properties, its all repayment. Should I transfer the properties into my company?

I have calculated I will be £1800 per year worse off, is this right? This along with the £2000 for the 7.5% on dividends as from next year is a lot of an income to lose. Typical of recent governments to penalise the hardworking.

booksurr

ASutton wrote: »

I was shocked to hear today that within the new budget the chancellor will be taxing landlords on their revenue, not on their profits.

can you please post a link to the source of this "news"

chrismac1

Some twit has told you some drivel. However, higher rate taxpayers will only be able to claim limited tax relief on mortgage interest. This is being phased in over several years, starting 6 April 16.

ASutton

http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/11816720/Death-of-buy-to-let-landlords-wake-up-to-Osbornes-150pc-tax.html

ASutton

Can you explain this using the figures in the op Chris? Does this mean that these changes will not push me into the higher rate tax bracket?

HappyHarry

I currently have 3 properties I was hoping to use as a pension and currently pay 20% tax on around 9k profit.

If you currently pay 20% tax on your rental income, and continue to do so, you will not see any changes when the new tax rules are introduced.

Residential properties are not pensions. Pensions are far more tax efficient. Residential properties can provide an income in retirement, which is what I am sure you meant to say

booksurr

ASutton wrote: »

Can you explain this using the figures in the op Chris? Does this mean that these changes will not push me into the higher rate tax bracket?

hardly today's news!

to illustrate your position we would need to know how much mortgage interest you are paying since the impact affects only the interest and without that figure we cannot show your exact circumstances as your taxable profit figure will be more than 9K but will certainly not be 18k as by defintion you must have some other costs besides mortgage interest

the telegraph article is misleading as it ignores all other costs and so it treats the 20K rent as all profit. It isn't, you can still deduct all other costs to calculate your net profit, the difference under the new rule is you cannot deduct the mortgage interest when arriving at your net profit. Instead you deduct that later by reducing the amount of tax you would pay by the value of your individual mortgage relief restricted to 20% only

as stated for a 20% tax payer that makes no difference, For those above 20% it is however certain they will pay more tax but very few will hit the scare mongering position per the Telegraph article.

Brighty

See below link for a calculator

https://www.rla.org.uk/taxcentre/tax-calculator.shtml

If you are currently a 20% tax payer, there is a chance you could be pushed into 40%. As the mortgage interest is dealt with after, your new taxable income will be your wage+rental revenue-expenses (but not mortgage interest)

You have revenue of £18000 and currently £9000 profit, if that is £8000 expenses and £1000 mortgage interest, you're ok, if its more like £1000 expenses and £8000 mortgage interest, you'll be way into the 40% bracket and paying £1200 a year more in tax.

Brighty