One of my Landlords with a rental property in Tooting recently asked what were my thoughts regarding new tax changes for residential property. For anyone uncertain of these changes, let me explain!-
The Government are restricting the amount of income tax relief Landlords receive on residential property. Landlords will no longer be able to receive tax relief on financial costs (such as mortgage interest). This change is being bought into effect gradually over the next four years –
2017-2018 75% of finance costs can be deducted from property income (previously this was 100%)
2018-2019 50% of finance costs can be deducted from property income
2019-2020 25% of finance costs can be deducted from property income
2020-2021 No deductions of finance costs can be made from property income
This would mean on an average one bedroom flat in Brixton, with a rental income of £1,400.00pcm/ £16,800.00pa and an ‘interest only’ mortgage with monthly payments of £450.00pcm/£5,400.00pa, – Year one (2017-2018), the Landlord would receive tax relief on 75% of the mortgage interest (equating to £4,050.00), leaving them to pay tax on the remaining £12,750.00 of the rental income. For a normal rate tax payer at 20% this would be £2550.00 for the year. It would be prudent to speak to an accountant, as there may be other costs which could be deducted from the rental income before tax.
So, what are my thoughts? Well if a Landlord doesn’t incur financial costs on their rental property this will not affect them. For Landlords with a portfolio of properties, some accountants suggest it could be more beneficial to run as a company, where such costs would be company costs, thought, with this model there are other tax changes to consider. I’ve adopted the thought that becoming a Landlord is a ‘decision’, and when making such a decision, costs must be considered. However there will also be an income generated – even if that income is just paying off the mortgage- it’s still an income, and with an income comes tax.
Until now having tax relief was a bonus that many of us have come to take for granted. Ultimately your rental property is your business, it will earn you money. Keep your property in good condition and keep up to date with legislation- even better, as many Landlords do, have Revere take care of all your property needs whether it be letting or selling.
Maybe its time to flick through a property magazine to get some ideas for your next property venture.
We’re happy to discuss any of your property queries, contact myself of Bruno.
Melissa De-Vall, Revere Property Limited, 020 7223 3922 firstname.lastname@example.org