Contractors and freelancers who earn additional income using the buy-to-let method face a decrease in profits due to changes that have been put in to place from the recent Summer Budget and tax advisers expect a large amount of activity due to this. The alterations will affect clients as changes to the taxation of landlords will negatively affect them.
Clients the most affected could potentially have their tax on investments doubled creating a tax rate payable above 100%. For individuals, this would cause losses for individuals with mortgages therefore meaning the buy-to-let technique would not be financially worthwhile. To make this worthwhile, investors may be forced to sell up or increase rent which could prove to be ineffective to those with mortgages. Wealthier individuals who do not pay a mortgage will be in a better position.
These issues have been caused by the Chancellor, George Osborne, who decided to remove the ability landlords have to deduct the cost of mortgage interest from their rental income when calculating their tax.
A petition has been created to oppose the change that is due to be introduced by 2017 and implemented by 2020 and to attempt to have this reversed. This has already received over 18,000 signatures and is continuing to grow rapidly with 4,000 new sign ups in the past 24 hours. Although, concerns remain that many buy-to-let advisors are unaware of these alterations with their accountants likely to pick through ramifications.
Tina Riches, who is a Smith & Williamson tax partner, commented:
“It will be very difficult for middle-income borrowers to get into buy to let in future, It won’t end overnight, but existing investors will sell and far fewer will buy. Buy to let may well waste away.”
The unconsulted move has been worked out to remove any profits landlords make due to mortgage interests of 75%+ of rental income, net of other expenses. Many who pay additional-rate taxes will begin to notice losses once mortgage costs pass 68% of rental income.
To sign up to the petition, click here.
Here at Gorilla Accounting, our specialist contractor accountants will provide you unlimited support for all your tax queries and you will even get a same day response if you contact us before 3pm under our client guarantee service. In addition, your personal tax return is included within our all-inclusive package for just £85 + VAT per month! If you’re interested in a free trial of our online bookkeeping software, do not hesitate to contact us on 0330 024 0406.