The changes that we have seen directed at Landlords have been much talked about, but what will it actually mean?
To help us understand, we have a great guest blog from Bill Humphreys, who is a Director at Libra Wealth Management – over to Bill…
During 2015 the Chancellor announced four separate measures that will significantly increase the tax burden for many landlords. The key changes are summarised below:
It is probably worth highlighting the impact that this may have using an example.
Example – The landlord purchased a buy to let property for £500,000 and the property generates annual rental income of £22,500 and is fully furnished. The purchase was financed by an interest only mortgage of £375,000 at 4%. The landlord incurs other expenses (agency fees etc) of £3,375 per annum. The landlord is a 45% taxpayer.
|Wear and tear allowance|
|Net rental profit|
|Tax at 45%|
|Mortgage interest relief at 20%|
|Net tax payable|
Under the current regime the landlord would have income tax of approximately £844 to pay annually whereas under the proposed new rules the annual income tax payable would be £5,606! Not only is this a staggering increase in the tax liability but it actually is greater than the rental profit and would leave the landlord with negative cash flow.
Based on the current rules the SDLT would be £15,000. Under the proposed new rules the SDLT would increase to £30,000.
As you can see these changes are likely to have a significant adverse impact on the tax position of many landlords. In certain circumstances the impact will be even more severe. Where the landlords current total income is close to important income thresholds it is possible that they will also lose their rights to other benefits, reliefs or allowances. A few examples are set out below:
…………….and what should you do about it?
There are a number of potential mitigation strategies depending upon your circumstances. We would recommend that you obtain independent tax advice as soon as possible to establish how these changes will impact you and your portfolio and explore alternative strategies.
With this in mind we have developed a relationship with a firm of Chartered Accountants who will be able to help you understand the impact of these proposed new rules on your personal situation and assist you in considering alternative strategies.
If you want more information you can contact Bill Humphreys at Libra Wealth Management Limited as below :-
Libra Wealth Management Limited, Suite 31, 10 Churchill Square, West Malling, Kent, ME19 4YU
E mail [email protected]
Telephone 01732 897900
Web site www.lwmltd.com