Property owners: Things to watch in the new tax year
As we approach the 2017/18 tax year end and start of 2018/2019, we thought it would be useful to set out two significant issues that could affect property owners out there in the next tax year.
Section 24 is here
This tax year sees the first time that landlords with finance costs see the real impact of Section 24 of the Finance (no. 2) Act 2015.
Still don’t know what that is? Well, if you’ve got a mortgage or other finance, you’ll notice that when it comes to doing your tax return in Jan 2019, you’ll see that 75% of any interest paid this tax year will be fully deductible from your rental income, with 25% relief being given.
Starting from this tax year - that means from 6 April 2018, that 75% figure will decrease to 50%. That means that when you come to do your tax return in Jan 2020, you might find your tax bill has increased.
Worse still - in the tax year ending April 2020, landlords will see that none of the interest paid in that tax year is deductible from the rental income. This means that if your rental income is £10,000 per year and your finance costs (e.g. buy to let mortgage) is £7,000 per year, you’ll be taxed on the full £10,000 - not the £3,000 profit (as you have previously been taxed).
This also has the effect of pushing some taxpayers into higher tax rate brackets. We’ve set this out below, using the numbers from the example above.
Tax year 2018/2019
Income from PAYE Employment: £42,000
Rental income from second property: £10,000
Finance costs on second property: £7,000
Total taxable income if the year was 2016: £45,000 (£42,000 + £3,000 of property income)
Total taxable income under new tax changes in 2018: £47,000 (even though you never actually see the extra £2,000!). Your new salary would also push you into the higher rate tax bracket.
Section 24 is hugely unpopular with landlords and it’s clear to see why. We’re already seeing large numbers of landlords looking to divest some of their portfolios as well as some accidental landlords selling up and reinvesting in other asset classes. As one landlord mentioned to us recently “It’s costing me to go to work!”.
There are alternatives to selling and tax advisors such as Rita4Rent can help. However, if you are looking to sell, there are few faster and more efficient ways of doing so then through an online auction. You can choose when you sell, and you’ll benefit from the expertise, reputations and buyer reach of auctioneers in the market. Because of the competitive nature of the online auction process, prices go upwards as more bidders enter the market.
Minimum EPC ratings for new leases
Ok, so not quite from the next tax year, (and as if Section 24 wasn’t enough for landlords) but from 1 April 2018, any properties that are rented out in the private sector should have a minimum energy performance rating of “E” on the property’s energy performance certificate (EPC).
This will apply for all new leases and renewed leases from 1 April 2018 and for all existing leases from 1 April 2020.
This means that if you are a landlord with a property rated “F” or “G”, it is more than likely, you’ll need to bring the EPC rating up to at least “E” before letting the property out. For what it’s worth, we’d recommend bring the property up to a much higher standard than “E”; now that the floodgates are open, it’s only a matter of time before the minimum rating is increased. So if you’re planning on doing the work, you may as well do it once and bring the EPC rating up as high as possible.
If you are interested in selling your property via online auction, contact us today!