If you're looking to buy a property as a rental, then you'll want to know about the tax relief available on finance costs.https://belgraviapropertyfinance.co.uk/ For example, there is capital gains tax relief on buy-to-let properties, and if you're an individual landlord, you can also claim tax relief on finance costs.
Tax relief on interest and other financial costs
For the home owners among us, tax relief on residential property has been a hot topic for years. There have been many new and improved ways to claim your fair share of the dwindling pie. With the introduction of the latest tax rules, many of us will be taking a hard look at our tax statements. To help you navigate the maze that is the newest incarnation of the taxing authority, we've compiled a list of the most important things to know. These include your new and improved tax rules, tax forms and the various tax credits to be claimed. We have also included a brief overview of the new tax codes, so you can be sure of the most up to date information. The newest rules have a number of advantages, including lower rates, more generous mortgages and more generous tax relief. Of course, you're still likely to encounter a few hiccups and bumps. However, these hiccups will be minor in comparison to the rewards of your hard earned tax dollars. This new tax regime is a good time to take stock of your situation and see what you can do to make the best of your newfound wealth.
Capital gains tax relief on buy-to-let properties
Capital gains tax relief on buy-to-let properties is a tax advantage that landlords can claim. The tax is normally due on sale of rental properties but can be avoided if you purchase properties through a limited company. It may also reduce the amount of tax you need to pay if you plan your disposal of assets wisely.
Landlords who lived in their buy-to-let for five years or more could qualify for Private Residence Relief (PRR) on the value of the property at the time it was their main residence. PRR is not available for those who only have a buy-to-let as a holiday home or other rented property. However, if you have bought multiple properties, you could use a joint CGT allowance to minimise your tax bill.
Another tax benefit is the ability to claim the "two out of five year rule". This allows you to offset gains from one property against losses from another.
For example, if you had been in your property for two out of the past five years, you would be eligible for a PS50,000 tax relief. You would then be able to claim a further PS28,750 for a total of PS47,700. If you were a higher rate taxpayer, this could result in a tax bill of PS10,556.
A number of recent changes have affected the buy-to-let market. There are also rules that govern the reporting of capital gains. As with any tax matter, it is important to get advice from a financial adviser who is experienced in the subject.
In the event that you are planning to sell your property, it is recommended that you notify HMRC of the sale within 30 days of closing. Failure to do so can result in penalty fees. Alternatively, you can defer the sale until the following year. Similarly, you can choose to delay the sale until your next tax year to take advantage of the annual Capital Gains Tax allowance.
Capital Gains Tax is a separate form of income tax. You will need to provide details of the gain or loss in your self-assessment tax return. You will also need to provide the details of any allowable expenses. These include the costs of buying and selling the property, legal and estate agent fees, maintenance costs, and any substantial improvements that you have made to the property.
Many landlords are able to reduce their capital gains tax bill by setting up a limited company to manage their portfolio. These companies are able to claim Corporation Tax on profits, so they do not have to pay the tax on the profits of the sale. They should also consider using a Qualified Intermediary to receive payments of any capital gains.
A number of recent changes have made the buy-to-let market more complex than it used to be. If you are looking to sell your buy-to-let, it is advisable to seek advice from an accountant who specialises in the subject.
Tax relief on finance costs for individual landlords
If you are an individual landlord, you will be required to make an adjustment to your tax return. In recent years, there have been changes to the way landlords can claim tax relief for residential property finance costs. This means that you will no longer be able to deduct the cost of mortgage interest payments from your rental profits. Instead, you will be able to claim the basic rate of income tax instead. Depending on your circumstances, this will have a significant impact on your overall income for tax.
The change to the tax relief for mortgage interest payments has been phased in over the past three years. From April 2017, you will be able to claim only 20% of the finance costs that you incur. Until this date, you could take up to 75% of your finance costs from your taxable profits. Those in higher tax brackets received 40% of the finance costs as a tax relief. Those in lower tax brackets did not receive the full relief, but were able to claim some of the costs.
In the last three years, landlords have experienced an increase in their tax liability. One of the biggest expenses for landlords is mortgage interest. With rising interest rates, it became increasingly difficult to borrow the money needed to purchase properties. Consequently, many landlords claimed just the interest from their rentals.
Tax relief for mortgage interest on residential properties will be restricted from April 2020. For those in higher tax brackets, you will no longer be able to claim the full amount of mortgage interest that you pay. Rather, you will be able to claim the maximum amount allowed by basic rate income tax. These changes were introduced by Section 24 of the Finance Act 2015. They were phased in over a three year period.
Landlords have enjoyed a generous range of tax reliefs in the past. Including tax relief on interest and capital gains, there are numerous opportunities to reduce your tax liability. There are also opportunities to claim housing incomes, utilities, repairs and bad debts against your rent. You can find more information on these deductions in the HMRC Property Manual.
Mortgage interest is typically the largest deduction that you can make. But, with rising interest rates, the finance costs of buying and refurbishing properties have also increased. As a result, the government has announced plans to reduce the tax relief for landlords on finance costs.
In the meantime, you can still deduct some of your finance costs from your rental profits. To do this, you will need to calculate the amount that you need to pay for your finance costs. You can do this using the Basic Rate Tax Reduction. By doing so, you will be able to carry forward any unused finance cost deductions in the future.
