Mortgage Tax Relief and Property Health Check
We are now in year 2 (financial year 18/19) and we will be losing 50% mortgage relief as a tax-deductible expense. Year 4 (20/21) will be 100%. However, many landlords will only just be realising how year 1 affected them with losing 25% and some landlords may not still know, if they have yet to submit their tax return.
The impact of this can catapult some landlords into the 40% tax bracket, if not this financial year then possibly in one of the next 3 financial years.
For example, if you receive a monthly rent of £1000 per calendar month and your mortgage is £500 per calendar month, then previously the lovely HMRC recognised your profit as £500. In last year’s financial year (17/18) 25% of the mortgage was not allowed meaning the profit as far as HMRC were concerned is now £625, even though your mortgage is still £500. This year (18/19) the profit seen by the taxman is £750, next year (18/19) will be £875 and from 2020, HMRC will not recognise the mortgage at all and the profit will be deemed as £1000.00 – how lovely is the tax man!
There are some ways of mitigating this by selling your property into a limited company, however, you would need to take into consideration capital gains and stamp duty. But it can be a mind-field. It could be that you are now considering selling your investment property and we have helped many landlords through our Landlord To Landlord Sales company, where we sell tenanted properties to investors, meaning you still receive rent up to the day of completion.
If you would like a friendly no obligation health check on your investment/s, please ring for a personal consultation with myself.
Have a good week!