Landlord with interest only buy to let mortgages. Calculating tax going forward

TriggerCut92

Hi everyone,

I've been a landlord now for a few years. I bought property over the years until I made just enough to live on the income from the rental. I have 8 properties and I never intended to have anymore. I'm by no means rich but I make enough to get by

I tend to just send my stuff to my accountant and let him work it out, and he's mentioned before about the changes for claiming financial costs on income. So I claim about £18,000 per year on my mortgages which is deducted from my tax bill, but now going forward form the year 2020/2021 I won't be able to do this I believe?

My take home pay last year was around £22,000. I've seen some websites saying it will affect everyone and some saying it won't affect anyone who is currently in the 20% tax rate, which I currently am.

Any help is really appreciated. Apologies if this doesn't make a ton of sense

silvercar

The changes have been introduced gradually over the last few years.

From hmrc drectly, with some examples here:

https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies

Dazed_and_confused

I've seen some websites saying it will affect everyone and some saying it won't affect anyone who is currently in the 20% tax rate, which I currently am.

They are wrong. It can affect you in more than one way, most likely would be if removing the ability to claim the finance costs moves you from being a 20% tax payer to a higher rate payer (or intermediate rate payer in Scotland).

So I claim about £18,000 per year on my mortgages which is deducted from my tax bill, but now going forward form the year 2020/2021 I won't be able to do this I believe?

It wasn't deducted from your bill, it was a deduction when calculating your profit. And your tax bill was based on the profit.

Going forward the end position finance costs cannot be claimed as an expense so you might have much higher profit, say £40k instead of £18k.

Then your tax bill is calculated on the £40k.

Finally, under the new rules, you may be eligible for a tax deduction relating to your finance costs. This is a fixed 20% of the eligible finance costs although there are some other rules which mean you might be able to claim the whole lot each year, it depends on how this compares to your (new) profit figure I think.

So for some there will be no overall difference. But is wrong to say if you are a basic rate payer now then it won't make any difference.

TriggerCut92

Ah okay I think I get it, thanks so much. I'll speak to my accountant properly next week.

So in theory, I've paid 20% tax each year on say 20k, now I can't claim my mortgage costs so they count as profit, so add the 18k mortgage costs to my overall salary which will then be around 38k. So I'm paying 20% on 38k going forward?

I know it's more complicated than that, but just as a rough idea

Dazed_and_confused

I'm not sure where you are getting a salary from??

If your profit is now £38k instead of £20k then yes your tax liability will be calculated using £38k.

But then you may be able to deduct a finance costs tax credit off the overall bill. This is why, for some people, it will not alter the actual tax which ends up being payable.

TriggerCut92

By taking this years salary then removing my mortgage interests costs against that, which would make my profit around 38 or so

00ec25

if you cannot follow the clear examples in the guidance then leave the tax calculation to your accountant.

https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies