Buy-to-let tax changes and how they affect you
Earlier this year the chancellor announced tax changes that will impact buy-to-let investors. Whilst the changes won’t begin to be introduced until 2017, with full implementation by 2020, the new proposals are complex and may impact negatively on your returns from your investment after tax has been paid.
What’s the biggest change?
Your tax will be based on rental income, rather than the remaining profits once the mortgage interest has been paid. A tax credit equivalent to the basic tax rate (currently 20%) will be applied. For some this change will mean that much of their rental income will be significantly reduced due to the increased tax bill.
So what can you do to minimise the impact? Here are our handy tips.
1. Letting agent fees
You will be able to claim the cost of your lettings fees against the monthly rental income.
2. Landlord insurance
The cost of your landlord insurance can also be deducted from your rental income. This could include not just the building, liability and loss of rent cover, but also home emergency, legal expenses and rent guarantee insurance.
If you have had to spend money on keeping your rental property in a good state, then these costs are tax deductible. You can’t claim for renovations, extensions or repairs but you can deduct for things like repairing appliances, white good, painting and decorating.
4. Ground rent and services
If you have to pay service charges, for example if you are in a block of flats, you can claim back on these costs.
5. Bills and council tax
If, for any reason, you are paying the utility bills and/or council tax on the rental property (for example during void periods), then these become claimable expenses.
6. Accountant fees
If you have an accountant who prepares your self-assessment tax return each year, their fees are tax deductible. Remember to keep all of your receipts and proof of payment in case of a query from HMRC.
Want to find out more? Get in touch today with ESPC Lettings for our free, impartial help.