April 2017
Since the inception of the program to restrict relief on finance cost and to tax landlords on revenue and not profit, DSS Select has been bombarded from landlords, property owners, and those just curious with questions, suggestions and possible solutions on this matter. Having just come into force in April 2017 landlords are justifiably worried how this will affect their bottom line. They are worried that as they are no longer allowed to treat their finance cost as an expense, profits will be even more diminished.
Over four years a tax credit will be applied at a flat rate of 20% of finance costs. The effect being some landlords will be pushed into higher tax bands. Not one to take this sitting down, our ever intelligent readers and our in house finance gurus come up with our three most popular strategies so far to combat this:
- If you’re married, restructure your income to maximise all available basic tax allowances – currently £43,000. By changing the percentage of beneficial ownership – no need to re-mortgage. The Chancellor of the Exchequer has confirmed that the basic tax allowance will increase to £50,000 by 2020.
- A partnership – allows landlords to allocate profits disproportionately to ownership and to allocate drawings disproportionately to profits. Adult children and parents who help with managing the property could be made partners. The effect being lower tax bills and well as being a IHT (inheritance tax) tool.
- Incorporation – companies are not affected by restriction on finance cost relief. But be careful of CGT, stamp duty and refinancing costs when transferring the properties to a company.
This restrictive practice will go further to reduce confidence especially among the smaller landlords who actually make up the bulk of the housing stock. However by restructuring your finances a savvy approach can be adopted. Get with a tax specialist or hotshot accountant to make things clear. We’ve just touched on this subject however we will take a deeper look into protecting your assets.
DSS Select
