Update on the changes affecting Buy to Let tax relief

27 July 2015 • tax videos

The July 2015 Budget introduced several changes that could affect many landlords owning and renting residential property in the UK, below is a summary.

The key changes included

  1. The restriction of relief for mortgage interest from 2017/18.
  2. Abolishing the wear and tear allowance from April 2016.
  3. The increasing the rent-a-room relief to £7,500 from 2016/17.

Perhaps the most significant of these changes is the restriction in the mortgage interest relief to the basic rate of income tax.  This restriction is being phased in over four years as shown in the below table.

Tax Year Interest eligible for full deduction  Interest restricted to basic rate relief
2017/18  75% 25%
2018/19  50% 50%
2019/20  25% 75%
2020/21  0% 100%

Tax effect of the change

To illustrate the mechanism by which the tax relief will be restricted please see the below example of a higher rate tax payer who receives rental income of £10,000 and the only other rental cost being interest of £8,000.

Rent        £10,000
Less: Interest eligible for full relief (£8,000 at 75%)  £(6,000)
Property income      £4,000
Taxed at 40% £1,600
Less: restricted interest relief (£8,000 x 25% x 20%) £(400)
Tax due £1,200

Previously the tax due would be based on the net figure of £2,000 which at 40% is £800.

Advice

From the above calculation it is clear that this will have a sizable effect on the tax due for a number of landlords especially when the restriction is fully implemented.

Given that the change is being phased in it is important to check the exposure and plan to mitigate any potential tax increase.

If you would like to discuss the above or any other tax matter please contact us at Warrener Stewart, you can also download our updated 2015 / 2016 tax card.

Summer Budget Highlights from Warrener Stewart

09 July 2015 • Tax Videos

George Osborne proclaimed his Summer 2015 budget as ‘a Budget for the working people of Britain’.

During the Chancellor’s unusually long speech he introduced wide-ranging changes to both the taxation and welfare system.

To see how the new changes could affect you and your business we have prepared overview of some of the key points and have a short video discussion featuring two of our tax consultants; Ryan Lane and Francis Kershaw.

Personal Allowance & Higher Rate Threshold – From April 2016 the Personal Allowance will be £11,000, rising to £12,500 by the end of the current Parliament in 2020. Similarly, the threshold at which higher earners must pay 40% tax initially increases to £43,000 next year, increasing again to £50,000 by the end of the Parliament.

Overhaul of Dividend Taxation – Currently basic rate tax payers do not pay tax on their dividends. From 2016 basic rate taxpayers who hold shares in a company will have to pay 7.5% tax on their dividends. For higher and additional rate taxpayers, they will be taxed on their dividends at 32.5% and 38.1% respectively. Everyone will however benefit from a tax free allowance for dividends of £5,000, and shares held within pension funds and ISAs will continue to receive dividends tax free.

Non-domiciled Individuals - Radical changes were announced to the tax rules which apply to ‘non-doms’, which will come into effect from 2017 onwards. In particular, individuals who have been resident in the UK for 15 out of the last 20 years will be unable to claim the remittance basis, and consequently will be taxed on their worldwide income and gains. ‘Non-doms’ with UK residential property in overseas structures will no longer avoid a UK IHT charge, and finally individuals born in the UK to UK parents will no longer be able to claim non-domicile status if they leave the UK but then subsequently return to take up residency.

Inheritance Tax - From 2017, an additional £175,000 allowance will be introduced where the family home is passed to children or grandchildren on death. This means that a couple will be able to pass up to £1m to the next generation without an IHT charge. However, the additional allowance is tapered away above £2m, such that the largest estates get no benefit from the new allowance.

Buy to Let Investors - Interest relief on rental property will be restricted to the basic rate of tax. The restriction will be phased in over four years, starting from April 2017. Additionally, from next year owners of furnished property will no longer be able to claim a 10% ‘wear & tear’ allowance: instead, a deduction will only be given for actually expenditure incurred.

Employment Allowance - From April 2016 the employment allowance will not be available where the director is the only employee in the company. For other businesses, the employment allowance will be increased to £3,000.

Corporation Tax - Corporation tax will be reduced to 19% in 2017 and further reduced to 18% in 2020.

National Living Wage - From April 2016, a new National Living Wage of £7.20 an hour for the over 25s will be introduced. This will rise to over £9 an hour by 2020.


If you would like to explore what this Budget Statement could mean for you and your business please call 020 7731 6163 to talk to one of our tax team, you can also download our updated 2015 / 2016 tax card.

Young accountant wins the longest drive

29 June 2015 •

Four of Warrener Stewart’s finest golfers, Nick Morgan, Jon Last, Gary Chapman and Charlie Dessain recently took part in Fulham Rotary Club’s Annual Team Golf Day.

This annual event designed to raise money for local Fulham charities was held at Coombe Wood Golf Club on Thursday 26th June. Whilst the Warrener Stewart fourball may have hit mid table obscurity, the youngest member of the team Charlie Dessain scooped the prize for the longest drive on the 13th. Charlie  (pictured with his prizes) managed a magnificent drive of 290 yards on the Par 4 hole.

“It was a fantastic day out” joint managing director Nick Morgan remarked (pictured in the buggy), “Our planning and analysis were as good as ever, but some slightly ‘bad luck’ with execution resulted in a less than favourable outcome!”

Fellow golfter, Gary Chapman helpfully added “Our retention of the ‘Pink Ball’ was unmatched by most on the day and Charlie's longest drive definitelty netted the best results!"

 

 

 

 

 

 

Warrener Stewart proudly sponsor local rugby club – Rosslyn Park FC

03 June 2015 • Sponsorship, Warrener Stewart News

Sealing their twenty five year relationship, Fulham based accountants, Warrener Stewart, are to sponsor one of London’s oldest and best known senior rugby clubs, Rosslyn Park for the forthcoming season 2015/16.

 This prestigious rugby club located along the Upper Richmond Road currently boasts over 3,000 members with players at all levels:– minis and youth, club and vets, girls and ladies, and not least the senior 1st XV which finished 2nd in the RFU National League 1 last season, just missing out on promotion to the Championship for a second year running.

Chartered accountants Warrener Stewart has a long and close association with the club, initiated by founding principal Peter Warrener who acted as Treasurer, Vice Chairman and finally Chairman. Nick Morgan, current joint managing director at Warrener Stewart, acted as Assistant Treasurer to Peter and went on to be Treasurer for a ten year stint, followed by a further five years as International Ticket Secretary. Nick Morgan and the tax team at Warrener Stewart, continue to provide professional advice and assistance to the club when required.

Nick comments; “It has been an honour to be involved with such a historic rugby club and help it negotiate the difficult path from the Corinthian era to the professional age, while continuing to thrive. A number of contemporary clubs were not so lucky, although luck has had little to do with it.” 

“Since we no longer volunteer at the club we decided we wanted to continue our support through sponsorship. Next season again promises to be very exciting,  with the 1st XV strong contenders for promotion and the addition of a new, state of the art, all-weather 4G pitch at the club’s Roehampton ground.”

Warrener Stewart celebrates the qualification of a second US tax expert

12 May 2015 • Warrener Stewart News

Tax experts Warrener Stewart now has two licensed IRS Enrolled Agents (EA) based at their Fulham offices following Ashleigh Molton’s qualification as an American Enrolled Agent in April.

Ashleigh, who holds a first class degree in Mathematics, joined Warrener Stewart back in July 2014 and immediately started studying to pass the American tax qualification, the Special Enrollment Examination. As a qualified EA Ashleigh can work with anyone who has is liable to pay American tax before the IRS. Being able to access a London based service is a real benefit to those needing help and advice on the complexities of the US Federal and State taxes from a non-resident perspective.

“I’m really pleased that Ashleigh has now qualified as an Enrolled Agent – we have seen a definite rise in the number of enquiries about US tax obligations,” notes Damian Talbot, head of taxation at Warrener Stewart.

“Under the current US tax system anyone with an American income source is liable for US Federal tax and possibly state taxes. Furthermore, US citizens who are currently living in the UK will probably still need to file a US return even where they expect to have no US tax liability. Through Ashleigh we can offer a cost effective service from our Fulham offices to the smaller clients who require straight forward US tax filing.”

An update on HMRC's Let Property Campaign

30 April 2015 • HMRC News, Tax Videos

Launched in autumn 2013, the Let Property Campaign provides buy-to-let and other private landlords an opportunity to make a full and voluntary disclosure on very favourable terms.

In 2014, around 40,000 landlords who failed to come forward voluntarily were sent a ‘promoted disclosure’ letter, however they would not receive the same favourable conditions as an ‘unprompted disclosure’.

Those who ignored the letter risk penalties of up to 100% of the unpaid liabilities, an investigation and in certain cases criminal prosecutions.

Process
Under the Let Property Campaign HMRC must be notified that you wish to make a disclosure. Once notified you have 3 months to bring your rental accounts up to date and complete the disclosure form. We have found this campaign very useful and to date all the offers we made to HMRC have been accepted.

Reason for making a disclosure
With increased data gathering actives, it is less likely a case of if, and more likely when, HMRC catches up with you.

Landlords with undeclared or under disclosed rental income who have not yet been contacted by HMRC and want to regularise their affairs should do so as soon as possible. Very favourable terms and affordable repayment plans can often be negotiated.

If you would like more information regarding this area please do not hesitate to contact us at Warrener Stewart call 020 7731 6163 and ask for the Tax Team.

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