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Mortgage interest relief

From 6 April 2017, landlords will no longer be able to deduct all the mortgage interest from their rental income from residential properties. Instead the deduction will be replaced by a “20% tax reducer”.

The rule is being brought in gradually over the course of the next few years but is already affecting many taxpayers now.

In many cases basic rate taxpayers will become higher rate taxpayers or additional higher rate taxpayers.

Some taxpayers may lose their entitlement to child benefit or the personal allowance.

If you think you may be affected by the these rules, please get in touch so we can advise you.

BUDGET MARCH 2017 – key points

From April 2017: new announcements

  • Package of measures to give some relief to those small businesses particularly badly affected by business rates revaluation.
  • Threshold for simplified ‘cash basis’ accounting for self-employed businesses raised from VAT registration threshold to £150,000 for 2017/18, and extended to landlords.

From April 2017: previously announced

  • Income Tax rates and allowances confirmed as announced at Budget 2016: tax-free personal allowance will be £11,500, threshold for 40% tax will be £45,000.
  • National Insurance thresholds for employers and employees made consistent at £157 per week.
  • Tax and National Insurance advantages of ‘salary sacrifice’ schemes withdrawn, apart from arrangements involving pensions, childcare, Cycle to Work and ultra-low emission cars.
  • New £1,000 tax-free allowances for trading and property income apply for 2017/18 tax year.
  • New tax-free childcare arrangements to be introduced on a trial basis and rolled out to all taxpayers over the coming year.
  • Tax advantages of foreign domiciled status will be lost for those resident in the UK for 15 of the last 20 years, and UK property held by a foreign domiciled individual through offshore structures becomes chargeable to Inheritance Tax.
  • ISA investment limit rises from £15,240 to £20,000 per year, of which £4,000 can be in the new ‘lifetime ISA’.
  • Public sector employers become responsible for tax due from individuals working for them through personal service companies and similar arrangements where there is an underlying employment relationship.
  • Limit on pension contributions for those who have already made a flexible income drawdown from a money purchase pension scheme will fall from £10,000 per year to £4,000 per year. Limit for those who have not made such a drawdown remains £40,000.
  • Main rate of Corporation Tax falls to 19% from 1 April 2017.
  • Benefit of VAT Flat Rate Scheme almost completely withdrawn for businesses spending less than 2% of their turnover or less than £1,000 per year on goods, excluding capital goods, food, vehicles and fuel.
  • Reforms to restrict interest relief and amend the rules for brought forward losses for corporation tax.
  • From 1 June 2017, Insurance Premium Tax rises from 10% to 12%.

April 2018: new announcements

  • ‘Making Tax Digital’ reforms require businesses and landlords with turnover above the VAT registration threshold (£85,000 for 2017/18) to make quarterly online reports updating their tax position; businesses below the threshold will not be affected until April 2019 (when turnover threshold will be £10,000).
  • Nil rate band for dividend income, introduced at £5,000 for tax year 2016/17, reduced to £2,000 for 2018/19.

April 2018: previously announced

  • Class 2 National Insurance Contributions for self-employed abolished.

AUTUMN STATEMENT 2016 – key points!

Effective immediately

  • From 23 November 2016 to 31 March/5 April 2019, businesses will be entitled to a 100% First Year Allowance for the cost of installing electric charge-point equipment for electric vehicles.
  • From 1 December 2016, income tax and CGT advantages of new shares issued in return for “employee shareholder status” will be withdrawn (shares already held not affected).

From April 2017

  • Income tax rates and allowances confirmed as announced at Budget 2016: tax-free personal allowance will be £11,500, threshold for 40% tax will be £45,000.
  • National Insurance thresholds for employers and employees to be made consistent at £157 per week (currently £1 apart at £155 for employees, £156 for employers).
  • Tax and National Insurance advantages of “salary sacrifice” schemes to be withdrawn, apart from arrangements involving pensions, childcare, Cycle to Work and ultra-low emission cars.
  • As previously announced, new trading and property allowances for £1,000 each for individuals with low levels of income from these sources.
  • New tax-free childcare arrangements to be introduced on a trial basis in early 2017 and rolled out later.
  • As previously announced, tax advantages of foreign domiciled status will be lost for those resident in the UK for 15 of the last 20 years, and UK property held by a foreign domiciled individual through offshore structures becomes chargeable to inheritance tax.
  • ISA investment limit rises from £15,240 to £20,000 per year.
  • Public sector employers become responsible for tax due from individuals working for them through personal service companies and similar arrangements.
  • Limit on pension contributions for those who have already made a flexible income drawdown from a pension scheme will fall from £10,000 per year to £4,000 per year. Limit for those who have not made such a drawdown remains £40,000.
  • Rural rate relief doubles to 100% to match small business rate relief.
  • Benefit of VAT Flat Rate Scheme almost completely withdrawn for businesses spending less than 2% of their turnover or less than £1,000 per year on goods, excluding capital goods, food, vehicles and fuel.
  • Reforms to restrict interest relief and relief for brought forward losses for corporation tax.
  • From 1 June 2017, Insurance Premium Tax rises from 10% to 12%.
  • New penalty for taking part in tax avoidance schemes that are held to be ineffective: VAT measures to be introduced from 1 September 2017.
  • New penalty for being connected with a VAT fraud in circumstances in which the person “knew or ought to have known” that a fraud was going on to be introduced from Royal Assent to Finance Bill 2017.

From April 2018

  • Class 2 National Insurance Contributions abolished; self-employed retain contributory entitlements through Class 4 NIC on profits or voluntary Class 3 contributions.
  • “Making Tax Digital” reforms apply to income tax, according to present Government plans; responses to consultations on the proposals to be published in January 2017.

To be announced

  • New measures to counter “disguised remuneration” schemes used by self-employed people and employers.

 

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