Presented by Louisa Norton ACA CTA Chartered Accountants | Business Advisers Landlord & Tenant...
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Transcript of Presented by Louisa Norton ACA CTA Chartered Accountants | Business Advisers Landlord & Tenant...
Presented by Louisa Norton ACA CTA
Chartered Accountants | Business Advisers
Landlord & Tenant Update: Changes that will affect you – Budget 2015
1. Factors to consider
Proven to be a successful investment
Capital appreciation exceeding inflation
Gross return now not as high
Dos Don’ts
Research Self manage (inc. family)
Long term investment Cut corners on documentation
Quality decorating Buy a ‘money pit’
Your sums Forget your tax return
2. Which Property?
• Location – schools/ transport…
• Demand – one bed / three bed
• Agents
• Tenancy Agreements
• ?
3. Tax On Rental Income
• Rents received minus allowable expenses
• However…
• Changes in Summer Budget mean that
mortgage interest will gradually become a non-
allowable expense
• 20% of the disallowed interest will be used as a
tax reducer instead
• Restricted to relief at basic rate of tax (20%)
• Any unused amount will be carried forward to
the next year
BR HR
Rental Income £40,000 £40,000
Expenses (£15,000) (£15,000)
Mortgage Interest
(£10,000) (£10,000)
Taxable Income £15,000 £15,000
Tax to pay £3,000 £6,000
4. Tax Relief Examples 2015/16
5. Tax Relief Examples 2018/19
BR HR
Rental Income £40,000 £40,000
Expenses (£15,000) (£15,000)
Mortgage Interest (£10,000) Only 50% deductible
(£10,000) Only 50% deductible
Taxable Income £20,000 £20,000
Tax £4,000 £8,000
Tax Reducer 20% of £10,000 but only 50% deductible (£1,000)
20% of £10,000 but only 50% deductible (£1,000)
Tax to pay £3,000 £7,000
6. Tax Relief Examples 2020/21
BR HR
Rental Income £40,000 £40,000
Expenses (£15,000) (£15,000)
Taxable Income £25,000 £25,000
Tax £5,000 £10,000
Tax Reducer 20% of £10,000 (£2,000)
20% of £10,000(£2,000)
Tax to pay £3,000 £8,000
7. Tax Relief Examples
2016/17 2017/18
Rental Profits £10,000 £10,000
Mortgage Interest (£6,000) (£4,500) only 75%
Net Income £4,000 £5,500
Higher rate tax 40% £1,600 £2,200
Tax Reducer N/A (£300) 20% of £1,500
Tax to pay £1,600 £1,900
Effective tax rate on the £4,000 profit
40% 47.5%
8. Planning
• Consider other income and those who border higher rates of tax
• High Income Child Benefit Charge (HICBC)
• Higher student loan repayments
• Contemplate restructuring your portfolio e.g.– A company
– Ownership
– Sale
– Debt consolidation
9. Planning
• Transferring rental business into a company:
– Stamp Duty Land Tax (SDLT)
– Capital Gains Tax
– Legal admin
– Mortgages could be more expensive
– Annual Tax on Enveloped Dwellings (ATED)
• Possibly worth it for some, but mostly not!
10. Jointly Owned Property
Where husband and wife co-own HMRC assumes
a 50/50 split – joint tenants
For any other split of income a Form 17 must be
completed – tenants in common
Form 17 is not reversible
Capital gain on property must be split
according to ownership
11. The End of Wear & Tear Allowances• April 2016 – new relief
• 10% calculation (gross rents less council tax & water rates)
• Capital cost of replacements
• Applies to furnished & unfurnished properties
• Improvements relieved on the eventual sale, repairs offset against rental income
• Fitted items integral to the building would be classed as a repair; i.e. baths, toilets, boilers, fitted kitchen units etc.
• Easier than calculating 10% Wear & Tear
• Consider deferring expenditure as no retrospective relief
Refurbishing a kitchen will count as a repair if the
kitchen is of a similar standard to the one it replaces.
If the kitchen is upgraded (i.e. increase in size or
using higher quality materials) then considered
capital in nature.
HMRC will accept the following as repairs: rewiring,
plastering, tiling and replacement of fixed fittings
such as sink and cooker.
Example:
12. Property Expenses Rents, rates, insurance: ground rents & service
charges for leased properties, heating & lighting costs, water rates & council tax etc.
Interest & other finance charges (but restricted from 2017)
Wear & Tear (changing to Replacement Cost)
Property repairs, maintenance (not improvements)
Legal, management & other professional fees: accountancy fees (drawing up property business accounts etc.), letting agents’ fees, advertising for tenants etc.
Costs of services provided, including wages: gardening, cleaning & security services etc. where relevant
Other property expenses: motor expenses for travelling to the property, stationary etc.
Wholly & Exclusively
13. Furnished Holiday Lettings (FHLs)
• Must be available to let for 210 days
• Must be actually let for 105 days
• 105 day rule can be averaged over a number of
properties or skipped for a year or two
• Eventual sale – CGT at 10% under Entrepreneurs’
Relief
• Capital Allowances available as FHLs are classed as
being a business
14. Tax On Sale
Capital Gains Tax at 18% or 28% dependent on
tax bracket
Proceeds minus original cost minus allowable
costs:
– Solicitors’ and estate agents’ fees
– Cost of improvements
– Capital losses
Annual Exemption
Principal Private Residence (PPR) / lettings relief
Paying off mortgage is NOT a tax deduction!
15. Letting the Main Residence
Rent a Room Relief – letting out a room/ rooms
in your main PPR
April 2016 the current rent a room limit of
£4,250 will increase to £7,500
May pull a few people out of Self-Assessment
Tax Returns
Lower tax bills for those earning just above the
allowance
16. Student Lettings
Student purchases property
Rent rooms to other students
Rent a room relief
Parent acts as guarantor on
mortgage
01626 358500
Questions?
Thank you for listening
Newton Abbot01626 358500
Totnes01803
862446
Exeter01392
493394
We can help you!