Today I’ll concentrate on known and potential changes for private residential landlords (not properties owned through a limited company). The trend of degrading benefits here continues I’m afraid.
Expect previously announced plans to further restrict tax relief on finance costs to apply. Finance costs will not be deductible in their own right, but from April will attract the 20% tax credit. This again increases your tax liability and for those hovering around the limits it could potentially push you into higher rate tax territory.
If you are highly geared (i.e. you have high borrowing) we can foresee situations where your property rental has negative cashflow, but you still attract a tax bill. Those with brought forward losses will continue to see those losses eaten away.
So do you sell? That’s a little less helpful as well. Previously if you’d lived in the property at any stage we could discount the last 18 months of ownership from our capital gains tax calculations. That period reduces to 9 months from April.
Also lettings relief (which in the past has rescued quite a few sellers from a heavy tax bill) would be restricted to the period of time in which you shared the property as a home with a tenant, so will in effect be lost completely for the majority.
Finally just to put the cherry on the icing of the cake: if you do sell and have a capital gains tax liability you must pay this within 30 days of sale. This is rather than declaring it on your tax return and being able to pay in the January following the tax year.
If you’re in it for the long term, with a few properties, Incorporation here may just have become a little more attractive – provided of course the current advantages stay.
That’s it until our Budget report tomorrow!
Questions? If the above gives you concern we can help you model what this means to your future finances so please talk to your Blu Sky account manager.