2016 saw a number of Government and economy led changes which affect the ultimate financial position for existing and would-be landlords.
So, what can we expect in 2017? The implications of the new tax rules to our landlords are complicated and as always, when I have a question about tax, I refer to my friend and associate Andrew Stant, Partner at Johnson Murkett and Hurst of Ashby de la Zouch.
“When the government announced restrictions to the mortgage interest relief claimed against rental income for income tax, we thought the principle was quite simple with just a minor complication of phasing the change over four years.
Now that the detailed rules are known, the position is more complex. The first phase of the new rules applies to the tax year starting in April 2017 and will have been fully implemented by the start of the tax year 2020/21. The mechanics in each of the years will be to calculate the rental profit and then deduct the fully allowable mortgage interest appropriate for that year (2017/18 deduct 75%, 2018/19 deduct 50%, 2019/20 deduct 25%). That results in a property profit which is put into the tax payer’s computation with other income to arrive at the tax payable. Then a deduction is made at 20% of the remaining allowable finance costs and it is this figure that introduces a new level of complexity because it is calculated at 20% based on the lower of:
• the finance costs not already deducted
• property profits
• adjusted total income (exceeding tax free personal allowance)
In most circumstances the first figure will be relevant but not in all cases, particularly for those who are 40% or 45% tax payers with a high ratio of borrowing to capital value and perhaps substantial repairs to deduct in a particular year. However, if the deduction is restricted, then any unclaimed finance costs may be carried forward to the next year, but the consequences of incurring high repair bills and not being able to recover the full tax relief on mortgage interest will already have been suffered.”
Other challenges we face as property investors are finding a deal with a healthy yield, changes to the Stamp Duty rules, the apparent announcement that agents will no longer be permitted to charge fees to tenants, changes to the tax relief around furnished rental properties, and the list goes on.
Never before has it been so important to make the right choice of Letting Agent. Our Clients have access to professional independent advice from experts in the industry about the above issue. We also provide clear advice on the following recent legislation:
• Right to Rent in the UK
• The need for a Legionella Risk Assessment
• Requirements for smoke and CO detectors
• Changes to Section 8 and 21 notices
• Reporting repairs with date recording
Is it harder to find a property which makes a good long term investment? Yes, but we work closely with our clients to ensure their choice leads to a smooth tenancy with long term opportunities.
Call Rebecca Howland at Howland Jones letting agents on 01530 271313 to talk about your next step. “Property is my passion and my advice is free”.