Can someone explain the new 20% tax rule on BTL

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    Can someone explain the new 20% tax rule on BTL

    Hi, can someone please explain the new landlords 20% tax rule that came into play this year. I understand that over the past 4 years it has incrementally decreased by 25% yearly and now its 20% but 20% on what ? Is it the total income received after deducting expenses or total income with no deductions. It might sound a stupid question but I have heard a few different versions and now getting confused.

    #2
    When did it get announced-never heard of it.

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      #3
      Ignoring the transitional arrangements which have now come to an end, this is the change.

      Old calculation:
      You take your income, and deduct all allowances (expenses including finance costs - which are typically interest, but can include mortgage fees etc) to arrive at a taxable income figure. You add that to your other income and calculate the tax due.

      New calculation:
      You take your income, and deduct all allowances (expenses excluding finance costs) to arrive at a taxable income figure. You add that to your other income and calculate the tax due. You then take your finance costs, multiply them by the basic tax rate and deduct the result from the tax due figure.

      That means that if you're marginally below the threshold for higher rate taxpayer, you'll pay a bit more tax than you expect.
      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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        #4
        Thanks for your detailed reply.

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          #5
          If you're undertaking your tax return for the year 2019-2020 then the old rules still apply.

          I.e 25% is tax deductible as an expense and 20% of the remaining 75% is tax deductible.

          Next year 2020-2021 20% of the 100% of your financial costs will be tax deductible

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            #6
            I use TaxCalc to submit my return and it works it all out for me

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              #7
              I just want to have a grasp of what’s coming when my return is due so I’m prepared and don’t get a big shock. Very thankful for your advice.

              If gnvqsos is a senior member and hasn’t heard the tax relief changes he must have been issued his membership from a Nigerian trader.

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                #8
                To gain an insight into how the tax gets calculated , might I suggest you go onto the TMW web site in which there is a part which allows you to nput examples and the system will provide Indicative figures on the tax calculation.

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                  #9
                  Is there a basic/simple formula for this?

                  (Work income - pension contributions + rent income - expenses) = taxable income - (mortgage interest/5) = total tax.

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                    #10
                    Use the link on the TMW it is a useful tool.

                    Comment


                      #11
                      Originally posted by Helvie View Post
                      If gnvqsos is a senior member and hasn’t heard the tax relief changes he must have been issued his membership from a Nigerian trader.
                      Senior by age not by wisdom.

                      Looking at that Taxcalc software it looks to be very similar to the HMRC website, I guess it might give you more guidance on what each section is or means but is it worth it?

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                        #12
                        Exactly I ve never heard of taxcalac

                        always seems better to pay £100 to have an accountant do the tax return

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                          #13
                          Helvie,

                          At risk of souning smug,I have no mortgages as all properties bought with cash.Hence disregarded a change which was not applicable.

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