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Possible changes to buy-to-let taxation??

There is much speculation in the press concerning the possibility of the Chancellor, George Osbourne, removing tax relief on mortgage interest costs in the budget on 8 July.

What does this mean for buy-to-let home owners?

Many of us have used savings as a deposit to buy a rental property, funding the balance of the purchase price with an interest only mortgage. Although there is no regular reduction of capital in this situation, it does mean that interest costs represent a large percentage of total rental income, and any tax liability payable on the profit is comparatively low.

If the Chancellor removes the ability to deduct interest costs in calculating the profit on which tax is calculated, this will substantially increase the tax cost of any mortgaged rental property.

If you own a rental property which has a mortgage on it, and the Chancellor introduces this change, you should consider the net income (after tax) and the yield that you are currently generating from your property. You should also review your current tax budget to ensure you are setting aside sufficient funds to settle the tax when it falls due.

There will undoubtedly be some property owners who decide to sell and invest elsewhere. Don't forget that this will almost certainly trigger a capital gain on which capital gains tax will be payable.

Whether or not you decide to retain or sell a rental property, there are a few simple changes you could make to improve your tax position. If you would like to know more, email us on enquiries@acklandwebb.co.uk.