Let properties
Individual landlords of residential properties can no longer deduct interest or finance costs from their rental income for tax purposes. In place of the blocked interest the landlord receives a 20% tax credit to set against their income tax bill. This restriction of interest deductions doesn’t apply to corporate landlords, nor to individuals letting furnished holiday accommodation (if the qualifying conditions are met).
Where your property business is supported by borrowing, the restrictions on interest deductions could push your total income into higher tax bands, leading to the loss of personal allowance or potential clawback of your family’s Child Benefit.
If your residential property business is supported by large borrowings, you should consider how you could restructure that business to reduce your higher tax bills. Your choices may include
• selling one or more residential properties to reduce your borrowings
• selling some residential property and reinvesting in commercial buildings, where the interest restrictions don’t apply
• letting homes as Furnished Holiday Lettings
• transferring the properties into a company
The last option is not easy, as the lender will have to agree to transfer your property loans to the company. The transfer of properties is likely to incur land tax charges for the company and may well generate a taxable capital gain in your hands.
Individual landlords with turnover of no more than £150,000 should use the ‘cash basis’ to draw up their accounts. This has the effect of taxing income in the year it is received and relieving expenses in the year they are paid. It may benefit you if your tenants tend to pay late. You can opt out of the cash basis if you wish.
We can help you model the financial future for your residential property lettings.
