If you have mortgaged residential let properties, you may be aware that an interest relief restriction applies. This restriction means that your taxable rental profits are higher than actual rental profits. The restriction has been phased in over the last few years and is now fully effective. In place of the restriction, a 20% tax credit applies instead on the amount of loan interest paid.
If you are a basic rate taxpayer, the tax credit will be sufficient to give you overall relief at the same level. For higher rate and additional rate taxpayers, the restriction will mean less relief and a higher tax bill. The increased rental profits will also impact your overall income for the year which may have wider implications – you may even be pushed into the higher rate band.
If you have a significant property portfolio on which there is substantial borrowings, it may be worthwhile considering planning options available to reduce the impact of the changes.
For example, wider family ownership may reduce taxes or the overall tax position may be improved with a company even though the corporation tax rate is due to increase from April 2023 as companies are not subject to the same restriction for interest. The increased flexibility of a company may also be useful, but the costs of incorporation can mean that it is not a suitable option for everyone.
If you are interested in exploring options available, please do get in touch with your usual Fiander Tovell contact or
to arrange a discussion.
If you are in the process of selling your residential property and expect to make a taxable gain, please remember that the disposal needs to be reported within 30 days of completion and any capital gains tax payable settled within the same time frame.
We will be holding a seminar in the Autumn which will feature residential property lets. Please look out for further details which will follow later this year.