Making Tax Digital
Until a recent announcement, landlords were going to be drawn into the requirement to upload quarterly details about their property businesses to HMRC under the Making Tax Digital obligations.
The date that did apply was April 2018 or April 2019 depending on the level of your rental income. We are now told that the only MTD filings required before April 2020 are VAT returns (from April 2019). As property rents are a predominantly exempt supply for VAT purposes property businesses can take a deep breath, at least until April 2020.
From April 2020, only businesses with turnover (rents in the case of landlords) more than the VAT registration threshold will be required to make quarterly uploads. Landlords with smaller rental receipts will no longer be required to concern themselves with MTD, although they could do so on a voluntary basis.
Tax relief on interest payments
For income tax purposes, 2017-18 is the first year that part of your finance charges will be disallowed and replaced with a basic rate tax credit – 25% will be converted in this way. If your interest charges are £20,000 during 2017-18, you will be able to claim £15,000 as a deduction from your profits, the balance of £5,000 will create a basic rate tax credit that you can deduct from your tax bill.
Further 25% slices will be changed in this way during 2018-19 and 2019-20 such that by April 2020 none of your finance charges will qualify for tax relief, and instead, will be replaced with a basic rate tax credit.
This will negatively impact the tax liability of higher rate tax payers, and certain highly geared landlords with significant interest charges.
Take advice
If you have not yet spoken to us about either of these matters please call and let’s consider your options.