Finance cost restrictions for residential landlords

Net profits from residential property (after deducting allowable expenses) are liable to income tax at your marginal rate:

  • For basic rate taxpayers 20%
  • For higher rate taxpayers 40%
  • For additional rate taxpayers 45%

The amount of tax relief for any finance costs is being restricted to the basic rate of tax. Meaning if you are a higher or additional rate tax payer with interest costs being incurred on let property your tax liability may be higher. This is being phased in gradually over 4 years from April 2017.

Finance costs will no longer be allowed as a deduction when computing taxable residential property profits. Instead once all your income has been assessed the finance costs will act as a tax reducer at 20%. Previously you would have got tax relief at your marginal rate.

Over the next four years you will be able to use some of the finance costs to deduct from your property profits, while some will be only used as a basic rate tax deduction. This is up until April 2020 when the basic rate tax deduction will be fully phased in.

 

Tax year

Percentage of finance costs deductible from rental income Percentage of basic rate tax reduction
2017 to 2018 75% 25%
2018 to 2019 50% 50%
2019 to 2020 25% 75%
2020 to 2021 0% 100%

If your total income, including residential property profits with no deduction for finance costs, is still within the basic rate you will not be affected by these changes. Please note there are some restrictions when finance costs exceed rental profits. However if your total income exceeds the basic rate and is in higher or additional rates your tax liability will be affected in the future.

Example – Higher rate tax payer

Jake owns a mortgaged property that he lets out. He has a mortgage on the property and he claims interest on this as an expense against his rental income each year. Jake also has a job where he earns £49,000 a year. The interest on his mortgage is approximately £3,000 per year. Below is a table showing increase in his tax liability between now and 2020/21:

Tax Year Increase in Tax liability
2016/17 £0
2017/18 £150
2018/19 £300
2019/20 £450
2020/21 £600

Please contact us regarding the above if you would like any advice or if you want your personal circumstances evaluated to see how the changes affect you.

Vacancy for an Apprentice Accounts Technician at our Millom Office

We are seeking to recruit an Apprentice Accounts Technician to join our Millom office, whilst studying the AAT Level 3.

The ideal candidate will work closely with the Accounts Senior and be reliable, enthusiastic, punctual and with good attention to detail. The job role will involve a wide range of duties including calculating VAT returns, accounts preparation, reconciliation of bank accounts, use of Excel, Sage and Xero software and the undertaking general office duties and administration.

Please email your C.V. to Ian Scott (ian.scott@saint.co.uk) by 15th December 2017.

 

New restriction for those in pension drawdown

One of the measures affecting pensions announced in the Spring 2017 Budget that was not included in the first Finance Act, concerns a new £4,000 pension input limit for those who are drawing income from their money purchase pension fund.

The new flexible drawdown rules introduced from 6 April 2015 has allowed those with money purchase schemes such as Self Invested Personal Pension schemes (SIPPs) to draw as much or as little as they wish each year. Other than the 25% tax free lump sum, the amounts withdrawn are taxed as income on the Individual. The new £4,000 (previously £10,000) annual limit in the latest Finance Bill is intended to be an anti-avoidance measure to deter pension “recycling” where the amounts withdrawn are reinvested in the pension scheme to obtain further tax relief.

Please contact us if you wish to discuss any aspects of pension planning.

How will the Autumn Budget affect you and your business?

Our guide to the Chancellor’s Autumn Budget for the 2018/19 tax year can be downloaded.

Chancellor Philip Hammond presented the 2017 Autumn Budget against a backdrop of ongoing economic uncertainty. The Office for Budget Responsibility revised down its outlook for productivity growth, business investment and GDP growth across the forecast period.

The Chancellor announced a range of measures that will affect businesses and individuals, including the immediate abolition of stamp duty land tax for first-time buyers on homes worth under £300,000, and a rise in the tax-free Personal Allowance to £11,850 from April 2018.

Also unveiled in the Autumn Budget was a change to business rates revaluations: these will now take place every three years, as opposed to every five years, beginning after the next revaluation, currently due in 2022. The Chancellor also addressed the issue of the so-called ‘staircase tax’.

Our informative Budget Report provides an overview of the key announcements arising from the Chancellor’s speech. However, it also looks beyond the headline-grabbing measures, offering detail on the less publicised changes that are most likely to have an impact upon your business and your personal finances.

Additionally, throughout the Report you will find useful tips and ideas for tax and financial planning, as well as an informative 2018/19 Tax Calendar.

Don’t forget, we can help to ensure that your accounts are up-to-date and filed in a timely manner, as well as making sure that your profitability is kept to a maximum and your tax liability to a minimum.

If you would like specific, one-to-one advice on any of the issues raised in the Chancellor’s Autumn Budget speech, please contact one of our offices.

Furnished holiday letting business is not a business for inheritance tax (IHT) relief

holiday let

A furnished holiday letting business is treated as a trade for most tax purposes. For example, capital allowances are available on furniture, and CGT entrepreneurs’ relief is available on disposal of the business.

However, a recent tax case has determined that a holiday letting business in Cornwall did not qualify for inheritance tax business property relief.

Despite the provision of a range of services to customers, the judge agreed with HMRC that the business was wholly or mainly that of making or holding of investments and as such ineligible for any relief from inheritance tax.

Note that the restricted deduction for interest that started to apply to buy-to-let businesses from 6 April 2017 does not apply to furnished holiday lets.

There are special rules for a rental business to qualify as furnished holiday lettings, in particular the property must be available for letting for 210 days a year, and actually let for 105 days.

Contact us if you need help with the tax implications of your furnished holiday letting business.

Increased contributions for workplace pension schemes in 2018

Auto-enrolment of staff in workplace pension schemes now applies to even the smallest of employers, although there are exclusions. The current minimum contributions are 1% from the employer and 1% from the employee but these limits are scheduled to increase to 2% and 3% respectively from 6 April 2018.

The contributions will then increase to 3% from the employer and 5% from the employee from 6 April 2019. Employees will have a further opportunity to opt out of auto-enrolment.

Contact us if you would like further help or advice about auto-enrolment or work place pensions.

Ross is the latest member to join the Ambleside Office team

Ross Huck
Trainee Accountant’s Clerk Ross Huck

Ross Huck joined Saint and Co’s Ambleside Office at the beginning of July 2017. Ross has lived in the area all his life.  He attended Ambleside Primary School and the Lakes School before joining Saint & Co.

Following his successful application to join Saint & Co Ross started attending Kendal College in mid-September and is currently studying towards his AAT level 2 course. He looks forward to progressing on his course. Ross is currently training as an accountants clerk and is looking forward to improving his knowledge and experience alongside his studies.

 

Ambleside Office’s David Dunlop qualifies as a chartered certified accountant

 

David Dunlop, pictured right, with Partner, Darren Little
David Dunlop, pictured right, with Partner, Darren Little

David Dunlop joined Saint and Co’s Ambleside Office in November 2011, after seeking a role within accounting to accompany the AAT qualification being undertaken at Kendal College.  David passed his AAT levels 2, 3 and 4 in his first 3 years.

Having found he enjoyed the challenge of technical exams David wanted a harder challenge so began taking the ACCA exams with the hope of qualifying as a chartered certified accountant. The course consisted of 2 or 3 day courses at Kaplan’s offices in Manchester alongside home study and weekend revision days.

In all David passed all 11 exams with first time passes at Fundamental and Professional levels within 3 ½ years to achieve his aim of becoming a chartered certified accountant!

After passing all the exams, David now plans to complete a dissertation to achieve a 1st Class Honours Degree in Applied Accounting.

David is grateful for Saint & Co not only paying for his studies but also for giving him the paid leave to facilitate his rapid exam success.

Professionally David is looking forward to using his new found qualifications and knowledge to undertake more challenging and advanced work within the Ambleside Office.

Outside the office David enjoys playing bowls for Bowness and Ulverston teams.  He also follows Manchester United and hopes their current return to form and success is long lived.

Partner Ian Thompson said “I am very pleased that David has achieved the success his hard-work and effort deserves.  We are constantly striving to ensure we can give our clients the best advice possible and to do so involves having a number of well qualified staff who can all keep up to date and bounce ideas off one another.  As one of the largest accountancy offices in the South Lakes David is now part of that client facing team.”

 

Arlagården Plus – is it worth the time?

With Arla now looking to roll out Arlagården Pus to all its UK milk suppliers, it may also only be a matter of time before other processors look to introduce their own versions.

cowScoring all the cows for cleanliness, condition, lameness etc could be a lengthy process for some, however, the suggestion of a 1 €/cent bonus can make it appealing – a farmer supplying 1,000,000 kg of milk could receive an extra £8,850 (on current €/£ exchange rates) annually, should they submit and qualify each quarter. For larger producers, this could equate to tens of thousands of pounds annually. For a several hours work on assessing and inputting the data on a quarterly basis, this could be a worthwhile task for the average farmer in its current form.

As such, this is likely to be an extension of the current Arla audit regime, with the assessor checking the scoring results when the normal audit happens. It isn’t yet clear what the implications will be if the assessor deems the results to be inaccurate.

Farmers must be sure they have the time to assess and submit the data within the application windows. Only time will tell if this will spiral into further data input? Perhaps online records of antibiotic and medicine records in the future?

The incentive is certainly worth considering, particularly with the volatility seen in recent years – every pound helps, and with many dairy farmers already assessing the cows in a similar way, perhaps there isn’t much extra work. It may be that an App or software currently used on the farm is able to tabulate and submit to Arla, rather than re-keying data – this would save a reasonable amount of time, and hopefully streamline the process.

Reclaiming foreign VAT on expenses

VAT

If your business has suffered VAT on expenses incurred in another EU country, for example overseas hotel and restaurant bills, then it is possible to reclaim the foreign VAT.

The foreign VAT must not however be reclaimed on the UK VAT return but by using HMRC ‘s VAT online services system.

The foreign VAT refund claims can be made either quarterly or annually but there is a de-minimis amount that may be reclaimed quarterly.

The conditions for being able to reclaim the foreign VAT are that the business must:

  • be VAT registered in the UK
  • not be registered for VAT in the EU country nor have a place of business there
  • not make supplies of goods or services in that EU country, except for transport services

Contact us if you need assistance with your refund claims if this applies to your business.