Making Tax Digital and Landlords – the latest
Up until a few weeks ago,if you are a landlord you were going to be drawn into the requirement to upload quarterly details about your property businesses to HMRC under the Making Tax Digital proposals.
Depending on the level of your rental income, you would have been drafted in either in April 2018 or April 2019. We are now told that the only MTD filings required before April 2020 will be for VAT returns (from April 2019). As property rents are a predominantly exempt supply for VAT purposes,the majority of property businesses can relax and breathe a sigh of relief, at least until April 2020.
Even from April 2020, only businesses with turnover (rents in the case of landlords) over the VAT registration threshold at the time will be required to make quarterly uploads. Landlords with rental receipts below that figure will no longer be required to concern themselves with MTD at all, although if you are a glutton for punishment you could always choose to start MTD on a voluntary basis (one in a million will I suspect!).
Tax relief on mortgage interest payments
For income tax purposes, 2017-18 is the first year that a proportion of your finance charges will be disallowed and replaced with a basic rate tax credit. In this current tax year, 25% of your interest charges will be converted in this way. So, if your BTL mortgage interest charges are £20,000 during 2017-18, you will be able to claim £15,000 as a deduction to offset higher rates of tax as normal. The balance of £5,000 will give rise to a basic rate tax credit that will provide deduction from your tax bill that is limited to the basic rate only.
Further 25% slices will be converted in this way during both 2018-19 and 2019-20 so that by April 2020 none of your finance charges will qualify for higher rate tax relief and instead will be replaced with a basic rate tax credit.
This will have a large negative impact on the tax liability of higher rate tax payers. In particular this change will affect those more highly geared landlords with many BTL mortgages carrying significant interest charges.
If you have not yet spoken to us about either of these matters please call so we can advise you of your options.