Buy-to-let landlords face cuts in the amount of tax relief they can claim
It’s the first week of the new tax year. As a reminder, here is a breakdown of some changes that have come into effect for the year 2017-18.
Money purchase annual allowance (MPAA) dropped
The MPAA has been brought down from £10,000 to £4,000. This affects people who access their pension pot to receive taxable flexible benefits, but then continue to make subsequent payments into a pension.
The MPAA is a means to stop people from using the flexibilities to gain double tax relief – for example, by diverting their salary into their pension scheme, gaining the tax relief and then withdrawing 25 per cent as a tax-free lump sum.
Landlord tax relief cut
Tax relief on mortgage interest payments for buy-to-let landlords will be gradually cut back to 20 per cent between now and April 2020.
Landlords could previously deduct finance costs from their rental profits to bring down the amount which would be subject to income tax.
For example, if a landlord has rental income of £50,000 a year, allowable expenses of £10,000 and mortgage interest payments of £30,000, the net profit would previously have been £10,000.
Once the new rules have been fully phased in, the net profit will be £40,000.
Non-dom status tightened
“Non-doms” who have been UK residents for 15 of the past 20 years will be deemed as UK domiciled for tax purposes.
The personal allowance, or the amount of income that is not subject to tax, has risen from £11,000 to £11,500.
At the same time, the threshold for higher-rate taxpayers has gone up by £2,000, from £43,000 to £45,000.
The residence nil-rate band (RNRB)
This applies to the family home when it is passed on death to direct descendants.
This starts out at £100,000 in this tax year, rising to £175,000 in 2020-21.
It will then increase in line with the consumer price index for subsequent years.
As with the existing nil-rate band, any unused RNRB can be transferred to spouses or civil partners.
When RNRB reaches £175,000 in 2020-21 and is combined with the existing nil-rate band, this would give a couple a total allowance of £1m.
Only one residential property will qualify, and only where it is not worth more than £2m.
Lifetime Isas introduced
Anyone aged 18 to 40 can open a lifetime Isa (Lisa) and contribute up to £4,000 each tax year towards their first home or retirement, until they turn 50.
The Government will add a 25 per cent bonus to these contributions, so those who invest the full amount can expect a £1,000 bonus.
Investors can contribute to only one Lisa in each tax year but can do so alongside one or more of the three existing Isa options, within the new overall limit of £20,000.