Archive for March, 2016

Wrong-foot the taxman before the rules change 6 April 2016

Wrong-foot the taxman before the rules change 6 April 2016

In his attempts to reduce the UK debt mountain, George Osborne has made inroads into a multitude of basic tax reliefs. Many significant changes are due to be made from 6 April 2016.


From this date, the government has declared its intention to deny UK taxpayers a number of basic reliefs. If enacted, these changes will divert personal and business cashflow, after tax income, into the Treasury. We have highlighted two areas where these changes will have a significant impact: private landlords and incorporated business owners.


Private landlords


Landlords of furnished, residential property will likely see an increase in their tax payments when the present 10% wear and tear allowance is replaced by a more restrictive replacement cost relief from April 2016. These are the reliefs that compensate landlords for replacement of furniture and some fittings. In most cases landlords will be out of pocket.


Landlords who add to their property portfolios from April 2016 will suffer an increased Stamp Duty charge. From this date buyers of second homes and buy-to-let property will face higher SDLT bills. In some cases up to three times the present charge.


Next year, from April 2017, tax relief on loan interest will be gradually restricted to the basic rate. This will seriously impact the ability of landlords with high debt to property values to maintain their property holdings. Landlords that are presently basic rate taxpayers may even find themselves paying tax at higher rates; this due to the gradual add back of actual loan interest paid and the deduction of lower tax credits.


What to do?


Landlords should delay any further purchases of replacement furniture until after 5 April 2016. In this way their claim for the wear and tear allowance 2015-16 will be unaffected and next year they can claim the new replacement furniture relief.


Landlords considering new property acquisitions should consider bringing forward the completion date prior to 1 April 2016.


Finally, all landlords with high borrowings should start planning now for the loss of tax relief in the coming years on their interest payments.


Limited company owners


At present, shareholder directors of small companies have enjoyed the use of a perfectly legal strategy that minimises National Insurance costs by paying themselves a reduced salary and the balance of their remuneration as dividends. From 6 April 2016, the overall tax cost of this arrangement is set to rise.


From 6 April 2016, the first £5,000 of dividend income is tax free, but any additional dividends, will be taxed at:


  • 7.5% if the dividends form part of your basic rate band
  • 32.5% if the dividend forms part of your higher rate band, and
  • 38.1% if the dividend forms part of your additional rate band.In practice, this will mean that any person in receipt of significant dividends will likely pay more tax.

What to do?


Consider stripping out any available company reserves to 5 April 2016 as dividends. If this can be done without pushing your overall income into the higher rates you will have no additional income tax to pay. Even if the distribution pushes you into the higher rates there may still be overall savings to be made.”


So there we have it. Across a broad range of topics a large number of taxpayers are facing increases in tax that they will be unable to resist. Contrast this with the tax treatment of multi-nationals who sit across the table to negotiate their sweet-heart deals!


If you have any queries, please do not hesitate to email or call a member of the team.

We look forward to speaking with you soon.