Why Buy to Let Investments still work for Seafarers.
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Buy to Let Investments have always been a staple when it comes to investments in the UK. The recent changes to mortgage tax relief and stamp duty by George Osbourne have shaken investors beliefs in this asset class. However, these tax changes will not affect Seafarers in the same way and below we explain why.
Over the next five years, landlords will see gradual changes to the way finance costs can be offset against rental income, in order to lower their income tax bill. The changes will be phased in over a 5 year period, and 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.
The good news is, as seafarer's income is not taken into account when arriving at taxable income, a seafarer landlord can earn up to £45,000 in rental income before this change will affect them. Up to this amount, the tax rate is 20%, so there will be no impact at all. It is only when you are paying tax in the higher bracket of 40%, that you will see an increase in your 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 then take into consideration the weak pound and the low Bank of England base rate, Buy to Let investments suddenly become an interesting proposition once more!
If you would like to discuss this further with a member of the team, please click on the link below:
Your home may be repossessed if you do not keep up repayments on your mortgage
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