Murray Beith Murray LLP is a leading Scottish private client law firm.
For 175 years we have specialised in meeting the legal, financial and administrative needs of individuals and families, family trusts, charities and private companies.
Murray Beith Murray LLP is a leading Scottish private client law firm.
For 175 years we have specialised in meeting the legal, financial and administrative needs of individuals and families, family trusts, charities and private companies.
The end of the current tax year will see the phasing out period finalised in respect of relief for mortgage interest on rental profits.
From 6 April 2020, there will be a straight tax relief against a landlord’s tax liability at the rate of 20% of the total mortgage interest paid.
The examples below illustrate the impact of the change in how relief is given on a higher rate tax payer with mortgage interest of £3,000.
|
£ |
|
|
Rental Income |
10,000 |
|
Less: Mortgage Interest |
(3,000) |
|
Taxable Rental Profits |
7,000 |
|
Tax Liability |
|
|
@ higher rate (40%) |
2,800 |
|
£ |
|
|
Rental Income |
10,000 |
|
Less: Mortgage Interest relief |
Not allowable |
|
Taxable income |
10,000 |
|
Tax Liability |
|
|
@ higher rate (40%) |
4.000 |
|
Less tax relief (£3,000 @ 20%) |
(600) |
|
Tax payable |
3,400 |
In this illustration, the change has given rise in an additional £600 tax payable, resulting in 34% of rental income being paid in tax, as opposed to 28% under the old rules. This difference will only increase as the level of rental income increases.
One point to note is the basic rate tax relief cannot produce a rental loss, however any unused finance costs can be carried forward and added to the finance costs of future years.
Over the phasing out period taxpayers have been exploring a number of possibilities to combat these changes. For example, transferring properties into a limited company, restructuring mortgage agreements to reduce interest as far as possible or disposing of property altogether. There are of course, associated tax consequences with these options.
Our link advises on the changes to lettings relief, private residence relief and new reporting requirements on property disposals introduced by the present Government.
If this blog has raised any questions, or you would like to discuss your tax position, please get in touch with Murray Beith Murray today using the Enquiry Form or call us now on 0131 225 1200.
At Murray Beith Murray, we are more than just tax practitioners - we are trusted advisors. We are dedicated to helping our clients solve problems and preserve their wealth. Our highly personal service reflects our culture, which is centred on integrity, trust and expertise, and the guidance we provide has been designed to be an investment, not an expense.
