A landlord has many issues to deal with, and a lot of the challenging factors relate to the administrative side of the business as opposed to dealing with tenants 
All professionals probably have endured an issue or two with tax in their lifetime but for landlords, there is a feeling that tax is a significant issue for the industry and there is growing resentment over the new and developing tax issues that landlords must contend with. 
 
Before the 6th of April 2017, landlords had the ability to deduct mortgage interest and other allowable costs that were associated with owning buy to let property from their rental income. This was carried out before determining the level of tax they had to pay which meant that landlords were able to keep their costs at a lower level and placing themselves into a lower tax bracket. This was down to the fact that this set-up ensured that the level of income that a landlord declared to HMRC was lower than the rental income they received. 
 
Tax responsibilities for landlords have changed in recent years 
 
Of course, from the 6th of April 2017 onwards, this changed. Each passing year results in landlords seeing the amount of money they can write off with respect to tax purposes drop by25%. This will continue all landlords will be required to declare their full rental income, pay the relevant income tax on this amount and then claim 20% of this amount as credit. 
 
The impact on landlords comes in two ways: 
• Landlords will need to retain a larger proportion of their rental income to pay their tax bill 
• In declaring a larger amount of income to HMRC, some landlords may be placed into a higher tax bracket, resulting in them paying even more money 
 
Both these outcomes can have a hugely detrimental impact on a landlord’s ability to generate income and run a profitable business. There are other tax implications for landlords to contend with now but the issue relating to tax relief has certainly caused concern for many landlords. This has been the factor that has persuaded some landlords to exit the market while other landlords have been resigned to the fact that they need to work harder or smarter to maintain a sustainable business. 
 
A change in tax bracket can be harmful for landlords 
 
The most critical issue for landlords with each new tax year is to determine if their tax bracket will be impacted on. While the Government claims that 82% of landlords in the UK will not be impacted upon by these changes, the landlords that are affected can be affected in a significant and negative manner. Some landlords have undertaken an incorporation of their activities to minimise the risk of paying more tax but there are many challenges and issues with this route too. 
 
It is only natural that landlords have concerns over their tax responsibilities, but it is essential that landlords remain in control of their taxation. Landlords should look to obtain as much support and guidance from specialists as they can, and if you need help in your role, please contact Strawberry Sales and Lettings. 
Tagged as: landlords, rental, tax
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