2017 marks the start of phased-in changes to the UK tax system; changes that could have a significant impact on net profits from your buy-to-let property.
But how can you keep that impact to a minimum? In this blog post we’ll look at a couple of ways to mitigate potential losses over the coming few years.
What do these changes mean for landlords?
Under the previous taxation system, landlords could deduct mortgage interest and allowable costs from rental income before calculating their tax liability.
From April 2020 however, tax relief on finance costs (such as mortgage interest) will be restricted to the basic rate of income tax – currently 20%.
Relief will be given as a reduction of tax liability, rather than as a reduction of taxable rental income. The change will be introduced gradually over four years, starting this tax year (2017/18).
If you are a higher rate taxpayer, chances are your profits will be significantly affected.
What do I need to do about it?
Your first port of call should be an independent tax advisor – he or she will be able to calculate the impact on your individual circumstances.
Once you have a clear picture of your predicted cash flow, you’ll be able to take a closer look at your costs and identify areas where you can offset some of the loss.
Where can I make some savings?
Letting fees are a good place to start. If you have been with the same agent for several years, now is an ideal moment to shop around and compare prices.
Don’t forget to look beyond the high street at smaller, independent companies that don’t have expensive overheads. At Lucie White & Company we are able to keep our fees low because we don’t incur the cost of a large office or the other expensive trappings of a traditional agent.
How can I make life as a landlord easier?
Being a landlord is hard work, so it’s a kick in the teeth when financial rewards start to wane. You could take some of the load off by investing in a property management service.
Putting your rental in the hands of an experienced property manager means that the day-to-day details of tenancies, rent collection, maintenance and repairs are taken care of, allowing you to take a step back.
A service like this could cost as little as a daily cappuccino from your favourite coffee shop; and along with letting fees, property management is considered an allowable expense that can be deducted from rental income before calculating your tax liability.
If you’d like to find out more about how we could help you get the most from your property investment, give us a call on 020 8549 8064.
And don’t forget that to celebrate our 10th year in business, we’re taking 10% off combined lettings and property management fees for tenancy agreements signed between now and September 2017.
Every little helps!