Changes for landlords

Over recent years, Chancellors have made tax announcements in Budgets that don’t actually take effect for several years. While they hit the headlines when announced, many are then forgotten about until they really start to bite some years later. One such announcement affects landlords and while it was made in 2015 it only took effect from April 2017. I want to look at this and another change that is coming next year and which I think few landlords are currently aware of.

The first change affects landlords who claim interest on loans against their rental income. Until 5 April 2017 that interest was allowed in full for tax. From April 2017 however, the rents less other allowable expenses will be taxed at all tax rates, but only 75% of the interest will be allowed at all rates – the other 25% will only be allowed at the 20% rate. From April 2018 this will change to 50% of interest allowed at all rates and 50% at the 20% rate. From April 2019 only 25% will be allowable at all rates and 75% at the 20% rate. From April 2020 interest related to let property will only be allowable at 20%.

Those were the headlines that made the newspapers, but there are even more restrictions hidden away in the small print. These include limitation of the tax reduction to the lower of the landlord’s adjusted total income for the year and the taxable rental profit less any brought forward losses. There are other, even more complex, restrictions beyond these.

The restrictions do not affect properties rented through limited companies.

Most landlords will already have discussed the changes with their accountants and will have taken action where possible (though for many, the scope for mitigation may be limited). Some however, because of the delayed timing, may still need to take advice.

The other change is making tax digital, which will apply to landlords as well as to businesses. Landlords with annual rent above £85,000 will have to record their rental income and expenses using accounting software and apps from 6 April 2018 and report summary data electronically to HMRC quarterly. From 6 April 2019 this requirement will apply to landlords with rental income above £10,000.

If you think that you might be affected and have not yet taken advice, you should talk to your accountant without delay.

  •  Paul Aplin OBE is a tax partner with A C Mole & Sons and Vice President of the Institute of Chartered Accountants in England & Wales; you can follow him on Twitter @PaulAplinOnTax. He and fellow tax partner Amanda Gunter can be contacted on 01823 624450