To Have, Hold & Share Rental Income Tax Efficiently

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As of 6 April 2017 the tax relief landlords receive for mortgage interest and other finance costs is restricted. The restriction is being introduced gradually so that by 2020/21 landlords will receive tax relief for finance costs at basic rate (currently 20%) instead of at the rate at which they pay tax.

This change does not just affect higher rate taxpayers.  Some people may find that, even though they are currently a basic rate taxpayer, as finance costs are no longer deducted in calculating their net rents, their income can be pushed into the higher rate bracket.

For spouses and civil partners who jointly own rental property, in the absence of an agreement to the contrary, the profits will typically be split 50/50. This can however be inefficient for tax purposes if one spouse is a basic rate taxpayer and the other is taxed at higher rate.

In such circumstances, they can register a beneficial ownership on the asset which stipulates a different ownership split, for example 80/20 and submit Form 17 to HMRC in order to tax the profits as such. This should of course be discussed with the experts in application to your personal circumstances before implementing.

If you’d like any further information please contact Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Landlords: Is your Tax on the Up from April 2017?

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From 6 April 2017 the relief that Landlords receive for mortgage and loan interest on residential lettings will be restricted. It marks a big change for Landlords as it is estimated that one in five will be affected by the policy.

Under the new rules, by 2020/21, finance costs will no longer be deducted from the rental income received (thus giving relief at whatever rate of tax you pay); instead they will be subject to basic rate relief, currently 20%.

The changes will be brought in gradually so that the following proportion of interest costs will be relieved in the normal way in the respective tax years.

2017/2018                           75%

2018/2019                           50%

2019/2020                           25%

2020/2021                           Nil

The balance of costs for each year will be relieved at basic rate.

This change does not just affect higher rate taxpayers.  Some people may find that, even though they are currently a basic rate taxpayer, when the finance costs are no longer being deducted in calculating their net rent, they may be pushed into higher rate tax.  And relief is only available at basic rate.

HMRC announced this change in 2015 in order to give Landlords time to prepare for the impact. If you haven’t done this already then there’s no time like the present (meaning… act NOW!).

Contact us if you would like to discuss your situation with one of the Green & Co team.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

2017 Budget Review

Following on from the Chancellor’s first and last Spring Budget, we are pleased to provide you with our summary of the key announcements, along with our tax tables for the 2017/18 tax year:

Budget Summary

Tax Data
The main changes include:

  • The tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018.
  • Class 4 national insurance contributions for self-employed workers will increase to 10% in April 2018 and rise again, to 11%, from April 2019.
  • Unincorporated businesses and landlords with a turnover below the VAT threshold will have until April 2019 before they are required to implement ‘Making Tax Digital’.

Among the key changes to note for this year are:

  • The Chancellor confirmed that corporation tax will be cut to a rate of 19% from April 2017 and it will be further reduced to 17% in 2020.
  • The personal allowance will rise to £11,500 in April 2017 and to £12,500 by 2020 and the higher rate income threshold will rise to £45,000, although special rules will apply in Scotland.
  • Individual landlords’ tax relief for finance costs will be restricted to basic rate tax – to be phased in over four years from April 2017.

More information on the Budget is available on our website or if you would like to speak to one of our team please contact us.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Accountancy firm develop its own software in bid to perfect service to clients

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This weeks edition of the South Wales Argus features an article on the development of our own software.

An accountancy firm has developed its own software suite in order to help businesses manage their taxation and finances better.

Cwmbran-based accountancy firm Green & Co Accountants and Tax Advisors has spent over two years researching what their clients need ahead of what is a busy few years of legislative changes.

The software suite is comprised of three facets; an income tax forecaster, a financial performance review and a prosperity dashboard.

Barrie Kenyon, Partner at the firm, said: “Recently, the government has made a number of adjustments to the tax system that are all coming into effect across the next three to four years such as the changes to mortgage interest relief and company car benefit. We want our clients to see how the changes in legislation will affect them so we can reorganise remuneration in a tax-efficient way.”

With Green & Co’s software suite, clients can use the forecaster to analyse the current taxable income and see what future liabilities will be for the next five years.

Explaining the financial review element of the software, Mr Kenyon said: “Some clients may not be able to fully understand the numbers thrown at them from the accounts. It is important that they know how to digest the data from key performance indicators of how the business is performing. Our graphical analysis helps clients understand how the business has been performing year-on-year and it is something we can help them work through and improve upon.

“Our prosperity dashboard reviews the business’ progression toward set goals whilst affording directors accurate up-to-date information as opposed to waiting until year-end accounts are produced.”

The theory behind the software is to provide businesses with real-time information in order to make quicker and better-informed decisions regarding the performance, direction and sustainability of the business.

Mr Kenyon continued: “As with everything we strive to achieve, our end goal is to help build a stronger business for our clients whilst increasing profit and reducing liabilities.”

Green & Co Accountants and Tax Advisors specialise in business growth and tax minimisation for businesses across Wales and the South West of England.

For proactive advice, contact Green & Co Accountants and Tax Advisors on 01633 871 122, follow @Green_and_Co on Twitter or email barrie@greenandco.com.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.