Property Developer: Tax Changes to Buy To Let Investments Explained
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Thankfully, the tax changes on buy to let properties, put into place by George Osbourne will not affect seafarers in the same way, here, we explain why:
Changes to the way finance costs can be offset against rental income will mean, over the next 5 years, landlords will gradually see changes lowering their income tax bill. By 2020, no finance costs will be deductible against rental income, instead a basic rate reduction of 20% will be applied to their finance costs, to lower their income tax bill.
Seafarer landlords will benefit immensely from this as their income is not taken into account meaning they can earn up to £45,000 in rental income before the changes will affect them!
Over this amount, however, will fall into a higher tax rate bracket of double the amount at 40% seeing an increase in the tax bill, instead of being able to offset 40% of your finance costs, you can only offset 20%.
Example:
| Before Changes | After Changes | |
| Seafarer Income | £50,000.00 | £50,000.00 |
| Minus Allowable Expenses | -£50,000.00 | -£50,000.00 |
| Taxable Income | £0.00 | £0.00 |
| Rental Income | £30,000.00 | £30,000.00 |
| Less: Mortgage Interest | -£10,000.00 | - |
| Taxable Income | £20,000.00 | £30,000.00 |
Tax
| Before Changes | After Changes | |
| £11,500 @ 0PC | - | - |
| £8,500 @ 20PC | £1,700.00 | £3,700.00 |
| Tax Liability | £1,700.00 | £3,700.00 |
| Less Relief on Mortgage Interest (£10,000 @ 20%) | -£2,000.00 | - |
| Tax Liability | - | £1,700.00 |
If you would like to discuss any of this further with a member of our team, please click here.
Any advice in this publication is not intended or written by Marine Accounts to be used by a client or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party matters herein.