Calculate how the April 2017 tax changes will affect your buy-to-let profit

Hopefully you already know that April 2017 is bringing the start of some unpleasant tax changes for private landlords; but have you calculated how they’re going to affect your bottom line?

You can use our buy-to-let profit calculator for existing properties in your portfolio just as well as for new investments you’re considering.

It quickly shows an estimate of likely buy-to-let profit along with other key financials.  Make sure you scroll down to see the detailed table of how your post-tax profit is going to change in the next few years.

To understand more about these tax changes make sure you read our earlier guest accountant post.

If you have any feedback or suggestions on how we can improve our buy-to-let profit calculator please do let me know.

Buy-to-let tax changes from April 2017 (and ones to remember from 2016)

This is a guest post kindly written and provided by Paul Samrah, partner at Kingston Smith.

In the 2015 Summer Budget, the government started to introduce a series of measures which together have had a very adverse effect on the tax position of residential landlords. Suddenly your property portfolio may not look so shiny.

These three major changes will come as a particular blow for individuals with considerable property portfolios. It may be time to consider an alternative structure.

Wear & Tear Allowance

Until 5 April, you could claim a tax deduction of 10% of the gross rents when letting fully furnished residential property. This covered the wear and tear of items such as furniture, white goods, carpets and curtains. Actual expenditure on these items was not deductible.

The wear and tear allowance ceased from 6 April. Instead, a deduction can be claimed for expenditure actually incurred in replacing furniture items.

Mortgage Interest Relief

Until 5 April 2017, you can still deduct the amount of mortgage interest you have paid on your let properties against your rental income. Relief is therefore given in full at your marginal rate (20% for basic rate taxpayers, 40% for higher rate taxpayers and 45% for additional rate taxpayers). Over the next three tax years, this relief with be reduced to basic rate relief as follows:

 

2017/18

2018/19

2019/20

% of interest
relievable at marginal rate

75%

50%

25%

% of interest
relievable at basic rate

25%

50%

75%

From 2020/21, relief will only be available at basic rate. For basic rate taxpayers there will be no change; however, for higher and additional rate taxpayers this will effectively mean you have a further 20% or 25% charge on mortgage interest paid. Where rental yields are low, particularly in London and the South East, this could even result in a net cash loss. Where property businesses are highly geared, this could also affect profitability significantly.

There are a few tax planning measures to consider:

  1. Switch to shorter-term fixed rate deals to get lower rates of interest;

  2. Place your property portfolio in a limited company structure. Corporation Tax is lower, but mortgage options are limited and there are other tax issues to consider;

  3. If your spouse pays a lower rate of tax, you could transfer ownership of one or more properties to them (taking care this does not lift them into a higher tax band).

The changes to the interest rules do not apply to qualifying furnished holiday lettings businesses, where full interest relief will still be available.

Stamp Duty Land Tax (SDLT)

From April, buy-to-let landlords have been hit with an extra 3% charge on each SDLT rate band, which vary by property value. In fact anyone buying an additional residential property, except where they are replacing their main residence, is likely to be affected.

The proposed higher rates will be three percentage points above the current residential rates, including the 0% band. Married couples and civil partners living together will be treated as one unit. This means that any homes owned by either partner will be included when the SDLT bill comes due on the purchase of another property.

Parents keen to help their children onto the property ladder could be hit with additional SDLT if they buy a home for them to live in or buy in joint names, The only way round this would be to buy the home in the child’s name outright but maybe with a formal loan from you so that you have influence if you wish.

Caravans, houseboats and mobile homes are not subject to the new higher rates of SDLT.

Capital Gains Tax (CGT)

Whilst generally CGT rates have reduced to 10% (from 18%) for basic rate taxpayers and to 20% (from 28%) for higher rate taxpayers, the rates have not been reduced for applicable residential property disposals.

For further help and guidance, please contact Paul Samrah, partner at Kingston Smith, on 01737 778546 or email: psamrah@kingstonsmith.co.uk

Early Access Accounts Are Live

All systems are operational and everyone on the early access list has been sent an invitation to dive in an start using PaTMa.

I know there are still some rough edges, that’s why early users are getting all features and unlimited property storage for free (during the early access phase), as well as a support hotline straight to me.

That said though, there’s already a great collection of features ready for full use. Here’s a quick summary of the main ones that can actually be used by this with access today.

  • Create records for as many properties as you need.  Label each one and record basic details.
  • Photo storage and gallery for each property – keep your marketing photos handy.
  • Gas safety certificate storage – upload an image of the certificate for safe keeping and record the expiry date to get an automatic reminder email a month before you need to renew it.
  • Track tenancies and tenants for each property, including uploading a copy of the agreement.
  • Store rent schedules (and change them over time) to know when rent payments are due – you’ll get an automated email if payments are more than a week late.
  • Record expenses, maintenance and mortgage payments.
  • View a snapshot graph of each properties current performance, revenue and expenses.
  • View and download (in Excel format) the full rent history for any tenancy.
  • Easily access end-of-year financial figures ready for use in your tax return.

More great features are already being worked on and will be arriving in the coming weeks and months, keep an eye on this blog to hear about them first.

Are you tired of filing paper and wrangling spreadsheets?  There will be another phase of early access accounts (update: subscriptions are now open here) provided in the very near future so join the mailing list now to be part of it.