Landlords – are you in control of your tax bill?

Published on 25th April 2019

Paying tax on the 31st January each year is not expected to be a pleasant experience, however the tax liabilities for some landlords this year were higher than may have been expected. The reason for this? The restriction on tax relief for finance charges are beginning to take effect and, for some, this is leaving them paying punitive effective rates of tax on their property income.

And the bad news? The tax liabilities are due to get higher.

By way of a reminder, the restrictions are being phased in over four years, and by the tax year commencing 6 April 2020, less than a year from now, all finance costs will be restricted so that only basic rate tax relief is given. In some cases this can lead to tax liabilities of more than 100% of rental profit – clearly this is unsustainable!

The memory of paying January tax bills may be fading, but I would encourage all landlords to complete their self-assessment tax returns as soon as possible and plan for the January 2020 tax payments and beyond.

In my experience, landlords typically fall into one of three categories:

  1. Landlords who are wholly or largely unaffected by the finance relief restrictions. These are often those with little borrowing and/or relatively modest taxable income. Also, individuals that own property through a limited company are not disadvantaged.
  2. Landlords who are facing higher tax bills, but the increases could be mitigated with some sensible tax planning.
  3. Landlords for whom the tax changes mean their business model is now fundamentally flawed and who need to take urgent steps to manage their tax exposure.

My recommendation to all landlords is to understand which category you are in. If you are in category two it would be sensible to take professional advice to ensure you are maximising the return from your investment. If you are in category three, now is the time for action.

Mark Simic, Partner