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Buy-to-Let Tax Relief: Are You Prepared?

You may or may not know but as a landlord you will no longer be able to offset all of your mortgage payments as expenses for your annual tax return. This is due to a change in tax law that takes effect in April 2017  (see Income Tax Relief for Landlords).

The amount you will be able to offset once this change takes place will be restricted to a maximum of 75% of the rental income you receive. This will reduce further in 2018 to 50% of your rental income followed by 25% in 2019. As from 2020 you will no longer be able to offset any of your mortgage payments against your rental income.

How much will you pay?

Use our Landlord Tax Calculator (below) to estimate how much income tax you will need to pay for your property.

Can I reduce the amount of tax that I pay ?

There are various methods of reducing the amount of tax you pay which includes the use of limited companies, but this depends on a number of factors:

WHAT ABOUT PUTTING MY PROPERTY UNDER A LIMITED COMPANY?

Under a limited company the outgoing mortgage payments can be offset against the rental income 100%. However, for this to take place you would need to redeem the mortgage and then transfer the property to the company so that a mortgage in the company’s name can be set-up. This would result in capital gains tax if the market value of the property has risen since you bought it. Obviously there will be no exchange of monies as the company belongs to you, therefore, the transfer of ownership would be classed as a gift based on market value. Furthermore, stamp duty would need to be paid for the transfer.

WHAT IF THE PROPERTY HAS BENEFICIARIES UNDER A DEED OF TRUST?

If there are beneficiaries under a deed-of-trust this may help to offset the tax on the rental income received. The rental income can be split amongst the beneficiaries in proportion to their share of the asset. The portion of rental income would then be put against each beneficiary’s tax liability, thereby spreading it. The rental income would then be accounted for in proportion to each beneficiary’s share which would be added to their income tax liability. This may or may not result in tax being charged depending on the tax status of each beneficiary. For example, if a beneficiary is a partner of a landlord and does not work, he/she would not have to pay any tax provided the rental income does not exceed £11,500 annually.

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