George Osborne delivered a headline grabbing budget and unusually for all the landlords and property investors out there, there is much to consider.
The biggest impact will be the restriction on relief for finance costs on property to the basic rate of income tax. These costs include:
• mortgage interest
• interest on loans to buy furnishings
• fees incurred when refinancing your properties
For higher rate taxpayers that could become very expensive and increase your tax bill by 25%.
This will be introduced gradually from 6 April 2017, so there is still time to organise your affairs to make your portfolio more tax efficient, but you will need to take action now to get everything in place.
So maybe now is time to consider incorporation though as you’ve heard me say many times “it depends” Incorporation may trigger capital gains tax, stamp duty land tax and possibly moving away from a very nice interest rate. Short term pain may help the long term gains and it’s always much easier to shelter wealth within a limited company.
Those of you who let your properties furnished will from April 2016 no longer be able to claim the wear and tear allowance which will be replaced by allowing residential landlords to deduct the actual cost of replacing furnishings.
There is however some good news with the increase in rent a room relief so it’s not all bad!
Despite the bold newspaper headlines announcing an increase to the nil-rate band for IHT to £1m, this will be gradually phased over the next four/five years and will only apply if your estate is passed to direct descendants. So, if you’re planning on leaving your hard earned wealth to someone other than your kids or you’ve assets exposed to Inheritance tax it’s as important as ever to get everything organised. So now may be the time to undertake our Inheritance Tax Risk Assessment Audit to identify where any liability could be reduced and to ensure that your affairs are in order.
Most of our compliance clients have taken out our Fee Protection Insurance, protecting themselves in case of an HMRC enquiry. For those who haven’t, please be aware that George also announced that he’ll be spending around £300 million over the next 5 years to tackle non-compliance by small and mid-sized businesses, public bodies and affluent individuals. This measure will result in additional tax receipts of over £2 billion by 2020-21 – so you have been warned!
Finally, if you’re one of the estimated million buy-to-let and other private landlords hoping to keep beneath HMRC’s radar, then please don’t think that anymore! HMRC will be employing more investigators and giving them the power to acquire data from online and electronic payment providers to help find you. It’s far better to come clean and disclose to HMRC before they find you and to help you do this, HMRC are providing a digital disclosure channel to make it easier to disclose any undeclared liabilities. Find HMRC before they find you!
If you are interested in receiving further information or booking a strategic consultation with Iain to see where he can help you legally avoid tax, please contact Jacqueline on telephone 0191 603 0270 or email firstname.lastname@example.org.