remortgages

A few weeks back, on Wednesday 21st October 2015, saw people celebrating ‘Back to The Future Part II’, when Marty McFly and Doc Brown flew into the future. Nothing really to do with BTL Landlords but worth doing some time travel ourselves to see what life from 2017 onwards could look like for those renting out properties?

Unfortunately no flying cars, self-tying trainers or hovering skateboards in sight still. However, one thing is for certain, offsetting loan interest payments from rental profits and ‘Wear and Tear’ tax relief for furnished properties, are most certainly a thing of the past. Those affected will be those:

• In receipt of a ‘buy to let’ income and
• Are a higher rate tax payer and
• Have used a loan to acquire a property on which they are paying interest

If Doc Brown, in 2015 was married, had ditched his Professor life (go with it!) and his only source of income was his BTL business, with:
• £600k Rental income per annum
• £200k costs per year
• £350k of interest each year

The picture looking into the future could look like this:

Current Basis Ends 2015/2016 New Basis Starts 2016/2017 (below is after 2020/21)
Rent £600,000 £600,000
Costs £200,000 £200,000
Interest £350,000 £0
Profit £50,000 £400,000
Personal Allowance – Husband & Wife £22,000 £0 – income over £122,000
Tax £5,600 £147,800
Interest Credit – 20%x£350,000 N/A £70,000
Tax Liability £5,600 £77,800
Tax Rate 11.2% 114.4%

 

The new system will see Doc and his Wife taxed on £400k profit and they would be additional rate taxpayers at 45%. Plus when the profit is shared by the couple they would receive £200k each but lose their personal allowance as their income would exceed £122k. It might be time for Doc to stop the clock given a potential tax rate of 114.4% in the future!

So what’s the answer for ‘Landlords of the Future’? Sell their property? Capital Gains Tax could stand in their way. Maybe it’s time to enlist a ‘trusted driver’ to steer them through the complexities that this could bring? The engine is running and the clock is already ticking…