Christina Nawrocki and Tom Biggs Natwest presentation.

1. What landlords
need to know
about
buy-to-let taxes
Christina Nawrocki
#BusinessOxygen

2. What’s important?
• Income Tax
• Capital Gains Tax
• Different way to structure your portfolio

3. Christina Nawrocki
Partner
FCCA

4. Wear & Tear Allowance
Income Tax
Mortgage Interest Relief

5. Wear & Tear Allowance

6. Mortgage Interest Relief
Phased in between 2017 & 2020.
2017: 75%
2018: 50%
2019: 25%
2020: 0%

7. Mr Styles
Circumstances 45K PAYE Income
15K Gross Rent
5K Mortgage Interest
Tax due on rent Pre changes – 3.4K
Post changes – 5K
Mr Payne
Circumstances 32K PAYE Income
15K Gross Rent
5K Mortgage Interest
Tax due on rent Pre changes – 1.7K
Post changes – 2.4K
2K @ 40%
13k @20%
Less tax credit of 5K @ 20%
How do the figures work

8. • Child Benefit
• 100K tax band
• Pension cap
110K earnings

9. Options for landlords
• Increase rent
• Increase mortgages
• Consider ownership
• Consider incorporating
• Service company
• Sell

10. Capital Gains Tax
• 18/28% not 10/20%
• PPR – principal private
residence reduced – 18m
• Lettings relief – 40k
• Transfer to spouse in
advance
• Tax advice
• From April 2020, all landlords
will have to declare capital
gains within 30 days.

12. Investment
considerations
buy-to-let tax
Tom Biggs
#BusinessOxygen

13. Incorporated v unincorporated
• What does incorporating mean?
• The owner-manager model – salary and
dividends

14. Differences – company and sole trade
• Interest deductions
• NIC
• CGT

15. Other indirect tax differences
• SDLT – 3% surcharge
• Stamp duty – share issue and transfers

16. What the figures look like…

17. Property business
Limited company Sole trader Tax saving/ loss
Rental profit gross 35,000 35,000
Salary -8,164 N/A
Rental profit net 26,836 35,000
Corporation tax
@19% -5,099 0
Profit after tax 21,737 35,000
Personal allowance
remaining -3,336 -11,500
18,401 23,500
Dividend
allowance (£5,000) 0 N/A
BRB tax @ 7.5% -1,005
BRB @ 20% -4,700
28,896 30,300 -1,404
Limited Company vs Sole trader
Example 1

18. Property business
Limited
company Sole trader Tax saving/ loss
Rental profit gross 60,000 60,000
Salary -8,164 N/A
Rental profit net 51,836 60,000
Corporation tax
@19% -9,849 0
Profit after tax 41,987 60,000
Personal allowance
remaining -3,336 -11,500
38,651 48,500
Dividend
allowance
(£5,000) 0 N/A
BRB tax @
7.5% -2,138
BRB @ 20% -6,700
HRB @ 40% -6,000
HRB @ 32.5% -1,674
46,339 47,300 -961
Limited Company vs Sole trader
Example 2

19. Property business
Limited
company Sole trader
Tax saving/
loss
Rental profit gross 124,000 124,000
Salary -8,164 N/A
Rental profit net 115,836 124,000
Corporation tax
@19% -22,009 0
Profit after tax 93,827 124,000
Personal allowance
remaining -2,340 0
91,487 124,000
Dividend
allowance (£5,000) 0 N/A
BRB tax @ 7.5% -2,138
BRB tax @ 20% -6,700
HRB tax @ 40% -36,200
HRB tax @ 32.5% -18,846
81,007 81,100 -93
Limited Company vs Sole trader
Example 3

20. Property business
Limited
company Sole trader Tax saving/ loss
Rental profit gross 35,000 35,000
Salary -8,164 N/A
Add back mortgage expense N/A 9,000
Rental profit net 26,836 44,000
Corporation tax
@19% -5,099 0
Profit after tax 21,737 44,000
Personal allowance
remaining -3,336 -11,500
18,401 32,500
Dividend
allowance (£5,000) 0 N/A
BRB tax @ 7.5% -1,005
BRB @ 20% -6,500
Tax relief on mortgage interest 1,800
28,896 30,300 -1,404
Limited Company vs Sole trade (mortgage restriction)
Example 1

21. Property business
Limited
company Sole trader Tax saving/ loss
Rental profit gross 60,000 60,000
Salary -8,164 N/A
Add back mortgage interest N/A 15,000
Rental profit net 51,836 75,000
Corporation tax
@19% -9,849 0
Profit after tax 41,987 75,000
Personal allowance
remaining -3,336 -11,500
38,651 63,500
Dividend
allowance (£5,000) 0 N/A
BRB tax @ 7.5% -2,138
BRB @ 20% -6,700
HRB @ 40% -12,000
HRB @ 32.5% -1,674
Tax relief on interest 3,000
46,339 44,300 2,039
Limited Company vs Sole trade (mortgage restriction)
Example 2

22. Property business
Limited company Sole trader Tax saving/ loss
Rental profit gross 124,000 124,000
Salary -8164 N/A
Add mortgage interest N/A 28,000
Rental profit net 115,836 152,000
Corporation tax
@19% -22,009 0
Profit after tax 93,827 152,000
Personal allowance remaining -2,340 0
91,487 152,000
Dividend allowance
(£5,000) 0 N/A
BRB tax @ 7.5% -2,138
BRB tax @ 20% -6,700
HRB tax @ 40% -46,600
HRB tax @ 32.5% -18,846
ARB @ 45% -900
Tax relief for interest 5,600
81,007 75,400 5,607
Limited Company vs Sole trade (mortgage restriction)
Example 3

23. Incorporating an existing business
• SDLT
• CGT
• Stamp duty on issue of shares
• Practical implications

24. Annual Tax on Enveloped Dwellings
(ATED)
• Aim of ATED
• Bands
• Reliefs
• Compliance – returns
• ATED capital gains
Property Value Annual charge
Between £500,000 and £1
million
£3,500
Between £1 million and £2
million
£7,050
Between £2 million and £5
million
£23,550
Between £5 million and £10
million
£54,950
Between £10 million and
£20 million
£110,100
Over £20 million £220,350

25. Investment
considerations
buy-to-let tax
@WellersSME
#BusinessOxygen