The MASSIVE headline in the Daily Mail today is that ‘Landlords face a tax rate of up to 66% on rental profits, stoking fears that many will ditch buy-to-let’ – http://www.dailymail.co.uk/property/article-6114105/Landlords-face-tax-rate-66-rental-profits.html
Please note… no you shouldn’t be taxed at 66% on your rental profits. Read further down to find out what you should do if you feel this is you. It’s actually pretty ridiculous!
Natasha
First off, bleurgh!! This is what puts the fear of god in me. I have to be honest and say that for the longest time I’ve been terrified of taxes. I had a dream once that I had to pay all of my income (not just profits) to the tax man and then had to live in my overdraft begging with absolutely nothing. It was horrendous. Low and behold, every single year I’ve sent my spreadsheets to my accountant and then just hoped for the best.
Inevitably I’ve never had to doll out all my money to the tax man, and it’s been absolutely fine. Because in all honesty I do know how much my tax roughly will be based upon my calculations… again I’m just terrified of getting it wrong.
In a timely coincidence, I had my 2017-18 tax review with my accountant yesterday. He’d sent the drafts through and we catch up to make sure I’m happy with it.
Contrary to popular belief my tax liabilities hadn’t gone up, even with the new tax changes.
The biggest change was that the student loans company will be collecting quite a hefty chunk of my property income…
(hopefully this gets it paid down quickly because every time I phone them for a statement they never ever give me the same figure of how much I have to pay off, it’s ridiculously hard to keep a track of. You would think it would go down, but sometimes it goes up… a blog for another day I feel)
Why There’s No Difference In My Tax…
Let me tell you why there isn’t any difference to previous years… my personal income is still in the 20% bracket. All my other ventures run through Ltd companies as I don’t need to have immediate access to that money.
It’s that simple, I’ve deliberately kept it that way. If you are in that 20% bracket you get tax breaks on your mortgage interest which means that essentially you are paying the same in tax as you would be before.
However, it has got me thinking if I’ve just capped my income earning abilities in my own name… because what happens if someone wants to pay me some more?! Or I want to pay huge dividends out of my Ltd company.
So, I posed the question to my accountant: ‘What would happen if I earned more through my personal income?’.
The answer (after a little bit of laughter): ‘You will always take home more profit than the tax man gets, no matter how much you earn. So, don’t be scared of taking on extra things’
Well, the relief was fabulous!!
How To Reduce Your Tax Liability
Back to the original statement. No, you shouldn’t be seeing 66% tax deductions. If you are worried that you are about to get taxed at this level on your properties then you need to hire an accountant you trust. In fact, in any situation where you own property you need to hire a good accountant, it’s so useful to have them on the team.
If you are. Higher rate tax payer, or even worried that you are moving into that bracket and want some strategies for reducing your tax liability, you can do the following:
- Increase your eligible costs
- Increase your rent
- Decrease your finance costs
- Sell your properties and use the cash to buy more strategically
- Move your properties to a Ltd company – but this must be a real last resort, it’s costly and in most cases doesn’t warrant the move (again get your accountant on board here)
If you are seeing these headlines and are terrified (as I’ve been), do your spreadsheets and then get onto your accountant. Find out what your liabilities will be and if you need to change, then there are some awesome strategies above.
Just don’t be scared. Burying your head in the sand will have no impact. It’s time to act now!
If you want my free checklist for knowing what your eligible deductions are then CLICK HERE to go to the blog!
Finally, I want you to comment below. What are your biggest fears about the tax changes?
Natasha
