Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice.
Every year there are brand new tax rules and allowances to learn. From April 2017, landlords faced a change instituted by the government that drastically changed the way they reduced their tax liability. It was introduced in phases and from 6 April, 2020 we’re entering the final phase of the plan.
An overview of tax rules
Previously, landlords were able to subtract mortgage interest and other costs from their rental income, thus reducing their overall taxable income.
Moving forward, relief will be given through a reduced tax liability as opposed to reducing taxable income. This change was introduced gradually, reducing the liability previously granted for finance costs by 25% per year for four years.
How the changes have been phased in:
2016/17 | 2017/18 | 2018/19 | 2019/20 | 2020/21 | |
---|---|---|---|---|---|
Percentage of mortgage interest deductible | 100% | 75% | 50% | 25% | 0% |
Percentage of mortgage interest qualifying for credit | 0% | 25% | 50% | 75% | 100% |
The start of the new 2020/21 tax year marks the first year without any percentage of tax relief for finance costs. Instead, interest rate relief will be restricted to 20%, the basic rate of tax.
What this might mean for you
If you’re currently a basic rate taxpayer, the new rules might nudge you into a higher rate tax band.
Higher rate and additional rate taxpayers will certainly owe more because of the change.
But, if under the new rules your income keeps you in the zero or basic rate band, luckily, there’s no effect on your tax liability.
To help determine your taxable income, there are still allowable costs that can be included in calculations used to work out your gross rental income.
Other options
Since the changes have been introduced, landlords have had to consider alternative revenue streams. Wanting to take advantage of properties they already have, they’ve turned to the furnished holiday let business.
Having a home away from home while traveling is only gaining in popularity and offering up their inventory for letting is an attractive option for landlords. As long as your property meets certain conditions, there are a number of tax relief options available.
How can you best manage your property portfolio?
If you think you might be impacted by the new tax rules and need help working out the financial implications or if you’re interested in figuring out whether your properties might be better used as a furnished holiday let, get in touch with Dental & Medical Financial Services today.