Finance charges for landlords – The knock on effects

12th November 2019

 

Since 6 April 2017, changes are being gradually introduced to restrict the relief available to landlords in respect of their finance costs. Under the old rules, the interest element of the mortgage payments was 100% allowable for income tax purposes. However, this is gradually being replaced with a 20% tax reducer instead.

The timetable for the remaining changes is as follows:

  % of finance costs given as:
Tax year ending: Expense 20% Tax reduction
5 April 2019 50% 50%
5 April 2020 25% 75%
5 April 2021 0% 100%

 

For example, if in 2020-21 you have finance charges of £1,000, instead of this being deducted from your property income, this will be included as a tax reduction of £200.

As interest is disallowed in the rental accounts, this increases overall taxable income, which could not only push you into the higher rates of tax, but could also have the following side effects:

  • Child benefit – if your adjusted net income is pushed over £50,000 it may mean that a high income benefit charge applies to you.
  • Marriage allowance – in order to be eligible for the marriage allowance you must be a basic rate tax payer (being income less than £50,000 for 2019/20).With the above changes your income might be pushed above this amount.
  • Personal savings allowance – the amount of personal savings allowance that you are entitled to depends on your adjusted net income. If this is pushed over £50,000 then you will only be eligible for an allowance of £500 (as a higher rate taxpayer) rather than £1,000 (as basic rate taxpayer)

For more information on how to calculate adjusted net income, please visit the following link:

https://www.gov.uk/guidance/adjusted-net-income

For more information on anything covered in this blog please contact us or your usual Whiting & Partners office.



 
Other items in Blogs
 
Vanessa Pearson
13th December 2019 April 2020 Proposed IR35 changes: Status appeals process

As the planned changes to who determines IR35 status are fast approaching, contractors would be well advised to review their contracts on HMRC’s updated CEST (Check Employment Status for Tax) tool. Having provided answers to questions regarding substitution, control and nature of the work, the updated tool will give HMRC’s view of the workers employment…

Read More »

Ben Kilby
12th December 2019 VAT Surcharge

Have you or your business received one between 23 April 2018 and 31 January 2019?   If so, you may want to check if it has been dated. If it has not been dated you may be in for a refund. Any surcharge liability notice or surcharge liability notice extensions are invalid if they have…

Read More »

Lucy Bayliss
25th November 2019 Don’t let your tax bill affect your festive joy. Instead, spread your tax payments throughout the year!

With the festive period fast approaching, it is easy to lose sight of your self-assessment tax return!   If you are employed or receiving a pension and you file your return before 30 December 2019, you can elect to have your tax collected through ‘Pay As You Earn’ (PAYE) rather than paying one lump sum…

Read More »

Ian Piper
22nd November 2019 2019 Growth: Missing in action?

(Data Source) As another year draws to a close, local SME businesses will be forgiven for looking forward to drawing a line under it. With 2019 sales growth barely nudging 1%, it has been a year of focusing on not slipping backwards, rather than the usual mantra of continually signing up new accounts.  When commentators…

Read More »

Mark Burrows
21st November 2019 Avoiding Self Assessment Tax Scams

HM Revenue & Customs have reminded Self Assessment taxpayers to watch out for fraudsters as the tax return filing deadline of 31 January approaches.   HMRC say they have received nearly 900,000 reports of suspicious phone calls, texts or e-mails from scammers pretending to be the tax authority.  Most of these messages were about fake…

Read More »

Scott Bishop
20th November 2019 Postponement of planned Corporation Tax reduction

Boris Johnson has announced plans to postpone the cut in Corporation Tax to 17% (down from 19%) that was due to take effect from 1st April 2020 in order to save £6bn, stating that the money would be better spent on other ‘national priorities’,  including the NHS.   It is not clear when, or indeed…

Read More »