Pay Less Taxation, how?. Time for Full Timing ? (1 Viewer)

[tonyl]

That's only when comparing the first and last years though, until the new rules come into force in 2020 you would be gradually worse off in the intervening years - using their example:

2016/17: £840 tax bill [100% relief on mortgage payments]
2017/18: £1200 tax bill [75% relief on mortgage payments]
2018/19: £1560 tax bill [50% relief on mortgage payments]
2019/20: £1920 tax bill [25% relief on mortgage payments]
2020/20: £840 tax bill [20% tax credit on mortgage payments]
So under the old system where you paid a total of £4,200 for the 5 year period, with the current and new rules you pay £6,360 which is an additional £2,160 in tax.

The table on that page shows that as the percentage relief on mortgage payments drops from 100-75-50-25-0, so the proportion of interest qualifying for tax credit increases 0-25-50-75-100, the two balancing each other out for basic rate taxpayers, as they always add up to 100%. As long as the basic rate tax payer remains a basic rate tax payer, he or she should be no better or no worse off during the process.

I'm not trying to defend the change, just understand its implications for me and plan how to deal with them. I've got it wrong in that I'm still a higher rate taxpayer this year (17/18), so it will impact on me slightly. However, retirement beckons and I will be a basic rate payer next year.

 

[Minxy]

The table on that page shows that as the percentage relief on mortgage payments drops from 100-75-50-25-0, so the proportion of interest qualifying for tax credit increases 0-25-50-75-100, the two balancing each other out for basic rate taxpayers, as they always add up to 100%. As long as the basic rate tax payer remains a basic rate tax payer, he or she should be no better or no worse off during the process.

I'm not trying to defend the change, just understand its implications for me and plan how to deal with them. I've got it wrong in that I'm still a higher rate taxpayer this year (17/18), so it will impact on me slightly. However, retirement beckons and I will be a basic rate payer next year.

Not quite, its ONLY in the first and last years that it is the same, in the intervening years you don't get the tax credit to offset the reducing allowance so will be worse off ... unless they've changed the rules again which I don't think they have.

 

[tonyl]

... unless they've changed the rules again which I don't think they have.

I was quoting from the same page as you, where it says they will introduce the tax credits on a sliding scale.

I've just checked and HMRC say the same. See https://www.gov.uk/government/publi...-finance-cost-relief-for-individual-landlords

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[Minxy]

I was quoting from the same page as you, where it says they will introduce the tax credits on a sliding scale.

I've just checked and HMRC say the same. See https://www.gov.uk/government/publi...-finance-cost-relief-for-individual-landlords

Yup, they've changed the rules again from when I last looked into it ... what a surprise ... a nice one though for us at least!

Having read through the info available, what I gleam from it is that the biggest negative 'hit' will be for those in the higher 40% tax bracket but it can still affect those in the lower 20% bracket if new the way the rental income is dealt means they are pushed over the top into the 40% bracket.

From what I understand this means that, in the old system the mortgage interest was deducted from the rental income first so only the balance of it was classed as 'actual' income upon which tax was calculated, but now all of the rental income will be counted as 'actual' income on which tax is calculated followed by a tax credit for the mortgage interest ... so even if their is no change to mortgage payments or rental income when comparing the old system and new system years, it could still put some 20% tax payers into the 40% band.

Why they altered it I don't know (except to try to get even more tax off some people!) as it's just made it more complicated and IMV will penalise those who are inadvertently pushed into the 40% bracket.

 

[Abacist]

They were examples of how it works, not a literally 'catch all' for every scenario. If you die whoever inherits it may be liable to CGT depending on how great the gain was ... they'll get it one way or another! I suspect most people who have a rental property would at some point in their future want to sell it and therefore the CGT issue needs to be considered, I'm just trying to make sure people are aware of it.

There is no CGT on death either on you, your estate or the person who inherits the property but your estate might be liable to inheritance tax on its total value less the nil rate band of £325,000 with the excess being liable to 40% IHT. There is some more recent relief for your house which I have not yet looked into.

 

[Minxy]

There is no CGT on death either on you, your estate or the person who inherits the property but your estate might be liable to inheritance tax on its total value less the nil rate band of £325,000 with the excess being liable to 40% IHT. There is some more recent relief for your house which I have not yet looked into.

In some instances there may be CGT to pay:

https://www.moneyadviceservice.org.uk/en/articles/calculating-and-paying-tax-after-someone-dies

Is there Capital Gains Tax to pay on the estate?
The good news is that the estate doesn’t have to pay any Capital Gains Tax on the property or assets that weren’t sold (also known as ‘unrealised gains’) before the person died.

But, if the property or asset is sold during probate and its value rose since the person died, there is usually Capital Gains Tax to pay.

This tax is calculated on how much the increase is since the person’s death.

Beneficiaries inherit the assets at their probate value.

This means that when they sell or give the asset away, they will pay Capital Gains Tax on the increase in value from when the person died to when it was sold or given away.​

As regards inheritance tax, if your children/grandchildren inherit your property, even if it is over £325,000 but below £500,000, there may be no CGT to pay ... it's not so 'black and white'.

http://www.telegraph.co.uk/tax/inheritance/does-new-inheritance-tax-perk-work/

The main thing is that anyone who is considering going down the rental property route needs to make sure they are aware of ALL the rules/regs with regard to income/inheritance/disposal etc.

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[Abacist]

As I said there is no CGT on death. You are referring to a sale after death where there has been an increase in the value of the asset since death and therefore the liability of the beneficiaries, usually paid by the estate as they have had to sell to be able to distribute the estate.

 

[gus-lopez]

Friend of mine some years ago had to pay 40% cgt on death of his father & then 40% iht on what remained . Hadn't even buried him! Then he was also told to be careful until he made a will as his 3 year old daughter would suffer the same problem if he died intestate.

 

[Minxy]

As I said there is no CGT on death. You are referring to a sale after death where there has been an increase in the value of the asset since death and therefore the liability of the beneficiaries, usually paid by the estate as they have had to sell to be able to distribute the estate.

At some point it is very likely that an inherited rental property would be sold by the beneficiary so there could still be CGT to pay if someone inherits and then disposes of the asset or it is sold to share out the asset to more than one beneficiary, ergo it could be a charge against the estate of the deceased or the beneficiary ... not as soon as they start push up daisies but could still 'hit' at some point.

I don't understand what you are trying to do on this thread ... I'm just trying to make sure people consider the possibility of this being applicable ... hence my CGT caution.

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[Lot lover]

I don't understand what you are trying to do on this thread

Perhaps just reminding people that one of the easiest ways to avoid CGT is to die.

 

[OldAgeTravellers]

Top, top, top secret...

Only a handful of very, very VIP Funsters know the location!
JJ

Does a couple of FB pies get the coordinates? Or do I eat them myself

 

[OldAgeTravellers]

Some very interesting ideas and information. Thank you all.

Before you go the BtL route it is worth talking to an accountant about doing it through a limited company, very different rules, you can pay yourself and the wife up to the threshold, pay yourself dividends up to the dividend threshold then pay the rest into your personal SIP's free of all taxes until you withdraw above the zero rate. There are some setting up costs and you need to find an accountant who doesn't sting you for being limited. But you can reduce the tax implications significantly and you can carefully and gradually hand it all over to the kids free of CGT and IT.
Doesn't suit everybody's situation but can save a packet in tax. And with a good agent you can manage the whole thing from the MoHo on a beach in Morocco or wherever and no withholding tax. Also think about commercial property, could be a long reparable lease no troublesome tenants so no management at all as long as the tenants don't go bust. Good Luck.
Steve

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[EuroTrotters]

Before you go the BtL route it is worth talking to an accountant about doing it through a limited company, very different rules, you can pay yourself and the wife up to the threshold, pay yourself dividends up to the dividend threshold then pay the rest into your personal SIP's free of all taxes until you withdraw above the zero rate. There are some setting up costs and you need to find an accountant who doesn't sting you for being limited. But you can reduce the tax implications significantly and you can carefully and gradually hand it all over to the kids free of CGT and IT.
Doesn't suit everybody's situation but can save a packet in tax. And with a good agent you can manage the whole thing from the MoHo on a beach in Morocco or wherever and no withholding tax. Also think about commercial property, could be a long reparable lease no troublesome tenants so no management at all as long as the tenants don't go bust. Good Luck.
Steve

I do have a limited company, I think I would need a new one.

 

[BONZO]

Getting heavy man........