With the changes in tax rules from April 2017, homeowners who rent out their properties will not be able to deduct mortgage interest as an expense when calculating their rental profits. This may seem like a simple and straightforward change in the taxation process bit there are two main considerations to be made by landlords.
When a landlord is an individual, they will not be able to avoid this change. However, the change is being introduced gradually, probably to allow new buy to let landlords gain some rental value on their property. They may otherwise find themselves paying more for the property than they are receiving in rental income.
From April 2017, 25% of the interest is excluded in the first year, 50% in the second and 75% in the third until 2020 when the full amount of mortgage interest will be excluded.
Many landlords wonder whether they will be able to find a loophole to avoid or at least mitigate some of this loss. Individuals, partners and limited liability partnerships are all liable under this change; however, companies are not affected.
Some individuals or partnerships may want to sell off their properties to a new company that they form to take advantage of what seems to be a convenient loophole. For landlords that have had property for several years, this may cause an additional headache because as a result of selling their property to a company they own, they may effectively be setting themselves up for a Capital Gains tax bill.
Depending on the amount of equity in the properties will depend on what the landlords decide to do.
Company or Individual
The new rules will also influence what new landlords decide upon when determining their taxation status. For many, it may be preferable to start off by registering a private company and then purchasing all properties through the company, or even buying an existing shell company off the shelf. This will also have a knock-on effect by influencing inheritance tax and other provisions that the landlord may have wanted to do with their financial assets.
Confused About Your Tax Bill?
If you’re a landlord and the new tax changes have left you baffled, then speak to Hammonds Accountants. At Hammonds Accountants, we can talk through your current situation and the aspirations of your property ownership enterprise to find a solution that works for you.
We are tax specialists and will be able to help you find the right way to progress your business while avoiding hefty tax bills. If you are a landlord of existing property or want to make decisions regarding starting out with buy-to-let properties, then get in touch today for a free consultation.
We want to help you achieve profitability as well as tax efficiency so call us on 020 8249 6328 for a free consultation. We’ll give you friendly, no-nonsense and practical advice in plain terms without the unnecessary and complicated accountancy lingo. Want to find out more? Visit our website at https://hammondsaccountants.co.uk/.