Posted by admin - October 8, 2015 8:49 am Warning to landlords

Significant increases to tax liabilities

Most landlords will soon be hit by a significant increase in their tax liabilities, where they have substantial borrowing on their properties.

The changes are being phased in from 2017 and fully implemented by 2020.

The changes will affect all higher rate taxpayers. Some basic rate taxpayers, very near the higher rate threshold, will also be pushed into the higher tax bracket.

Landlords who rely on the income, instead of holding the asset for capital growth may find the investment unviable, where they end up paying tax although they haven’t made a profit.

The change will see any higher rate taxpayer only being entitled to a 20% basic rate tax credit on their borrowing costs. This means that once the changes are fully implemented, a higher rate taxpayer who makes £10,000 profit before borrowing costs of £10,000 would have tax to pay of £2,000.

The calculation works as:

£10,000 at 40% = £4,000 of tax.

A credit of £10,000 at 20% is given, leaving £2,000 of tax to pay, even though no profit has been made once the borrowing costs have been paid.

Middle earners will be hit hardest

The change is expected to hit middle earners the hardest, who have invested in property as a means to supplement their income in light of poor interest rates.

Any landlords with no borrowing costs will see no change in their tax position as a result of these changes.

For further information and advice please contact your local MFW office.