A new ruling which may have been overlooked is that of mortgage interest relief for mortgages in the Buy To Let (BTL) sector. This is now an income reducer as opposed to reliever. As you may know this is currently being phased in.
Much of the concern is the fact that when we reach 2020/2021 the gross return from BTL properties (after the usual maintenance, insurance etc. has been deducted) will be added to our incomes with a reducing effect at basic rate tax.
A typical BTL investor with, for example, 4-5 properties may well have gross income of £50,000 but will be paying mortgage interest of £25,000. Historically the amount of income added to their current income would be £25,000 taxed accordingly, whereas post 2020 the full £50,000 will be added to income and then relief at 20% will be given on £25,000 of this.
If this extra £25,000 notional income per annum, for example, takes you above £100,000 then income is pushed into the ‘tax trap’ and taxed at 60%. If this income pushes you above £110,000 then this can create lots of issues for tapered annual allowance. This extra income could affect your ability to claim means tested benefits, child benefit and the list goes on.
You may need to review the ownership of this income to make best use of tax reliefs available. If you would like more information please get in touch to arrange an initial conversation.
Financial Planner & Director