As the end of another tax year fast approaches, I take this opportunity to remind you of the following tax legislation changes affecting the current year and those to come.
Landlords Interest Restriction
From 6 April 2017 landlords of residential property are required to restrict tax relief on finance costs such that full higher rate tax relief will no longer be available. Instead, tax relief will only be available at basic rate on landlords loan interest, but the restriction is being phased in over a four year period as follows:
|Tax Year||Finance cost allowed in full||Finance cost allowed at basic rate only|
|Year to 5 April 2018||75%||25%|
|Year to 5 April 2019||50%||50%|
|Year to 5 April 2020||25%||75%|
|Year to 5 April 2021||0%||100%|
Therefore in 2017/18, a higher rate taxpayer can receive full tax relief on 75% of the interest cost with the other 25% of interest being restricted to basic rate tax relief only.
Another quirk of this change to legislation is that the interest cost will no longer be a deduction from rental income and therefore the taxpayer’s total taxable income will increase as a result. In certain circumstances this could impact on other tax allowances if the loss of this deduction pushes total income over a threshold, such as the loss of child benefit if income now exceeds £50k, or personal allowance if it exceeds £100K.
Any higher rate taxpayer with rental income, who claims tax relief for interest on borrowings, needs to be aware that he or she will likely see an increasing rise in their tax liability over the next few years.
From 6 April 2018 the tax free dividend allowance falls from £5,000 to £2,000. The rate of tax applied to dividends in excess of £2,000 remains at 7.5% within the basic rate, 32.5% at higher rate and 38.1% for additional rate taxpayers.
The fall in the tax free allowance in particular means that those owner managed companies whose owners take a small salary and the balance as dividend will again see a rise in their tax liability, albeit not as significant as the original dividend tax change of two years ago.
Making Tax Digital (MTD)
No such article would be complete with mentioning MTD. It is difficult to keep up with the constant changes to this but the latest news is that MTD for individuals is postponed until at least April 2020.
However businesses with a VAT taxable turnover above the registration threshold (currently £85,000) will be required to be MTD compliant for VAT filings from April 2019. As a result those businesses will be required to store information digitally and use this information to complete and submit their VAT Returns.
In summary, it is important to keep abreast of tax legislation changes coming in and where possible talk to your advisor to see if there are any tax planning opportunities available.