News & Insights

New tax changes could cause problems for expat landlords

The major change is the gradual reduction, and eventual elimination, of mortgage tax relief.

Before April 2017, landlords owning UK properties could deduct mortgage interest and other allowable expenses from their rental income before working out their tax liability. However, this year saw the first of three cuts in mortgage interest relief, seeing it go from 100% to 75%. This will fall again to 50% next year, and then 25% in 2019, and finally to 0% in 2020. Instead of mortgage interest relief, landlords will be granted a reduction worth up to 20% of the mortgage interest cost once their income tax on property profits and any other income sources have been assessed.

In short, this new system will lead to much higher tax bills for many landlords letting out UK properties.

It’s easy for someone living overseas to fall out of the loop and not be aware of these changes, but it’s crucial for any expat renting out a property in the UK to keep up to date with the amount of tax they’re required to pay on rental profits. Failure to declare rental profits could leave you facing a penalty from HMRC.

Now, licensing schemes, which require landlords to share their names and property addresses with HMRC, have been introduced in several areas across the UK to help crack down on those who avoid paying the right amount of tax. In just one London Borough – Newham, which has 27,000 registered landlords – HMRC found that 13,000 had not registered to pay tax on their rental profits, potentially costing the country up to £200 million.

The new rules regarding mortgage tax relief were initially announced by George Osbourne in the 2015 Summer Budget to make the tax system fairer, but some feel it puts retirees in a difficult position. One group concerned about the impact on pensioners is the National Landlord Association (NLA), who feel the new system could lead to significant shortfalls on retirement incomes.

CEO of the NLA, Richard Lambert, spoke of the trouble the tax changes could mean for many expats, many of whom are reliant on letting out property to fund their retirement years. Lambert warned that the new regime could “substantially” cut down the income expats receive from such investments, possibly going as far as to “compromise the retirement plans of a significant number of hard-working people”.

Lambert went on to suggest ways to help improve the situation. The NLA is now calling on the government to reduce the Capital Gains Tax landlords pay when selling their property if they’ve owned it for a long time. “A capital gains relief like we propose would provide an incentive to sell, allowing people to sell poorly performing properties and potentially purchase an annuity or invest in more liquid, lower risk assets to fund their retirement instead,” Lambert said.

What could the tax changes mean for you?

Renting out buy-to-let properties is one of the most common ways for expats to earn extra income, which is why it’s important you understand the changes and make sufficient preparations for any potential knock-on effect on your finances.

Of course, everyone is in a different situation when it comes to managing their wealth. For instance, if a landlord is living in Grand Cayman, their wealth management plans will likely be affected by the new rules in vastly different ways when compared with a landlord still in the UK.

That’s why, if you are concerned about how the new tax rules may affect you and your particular situation, it’s important to seek advice from an expert financial adviser. Blacktower’s independent financial advisers are situated in some of the most popular expat locations across the globe, and we want to help you make the most of your money.

Other News

Modelo 720 (Overseas Asset Declaration) It’s that time of year again

Spanish FlagIf you are resident in Spain (if you live here more than 183 days in a calendar year, the Spanish tax authorities and in turn the UK HMRC will class you as Spanish resident) and held assets outside Spain as at 29 December 2017 worth over Euro 50,000, and you haven’t already declared them on a Modelo 720, you need to so by the end of March.

You may ask why should you bother, well unless you want a huge fine and possibly tax audit (they can legally go back to 2012) it is in your best interests to do it.

Some of you may still be under the impression that the reporting of assets is not a legal requirement; if this is the case then sadly I have to tell you, you are mistaken. On 15 February 2017, the European Commission accepted that Spain has the right to require residents to declare overseas assets. While the Commission disagrees with the severity of punishments for late or inaccurate submissions, the requirement to submit the Modelo 720 form is not under challenge. The EU and the UK say it is a legal requirement.

Read More

Growth Stocks vs Value Stocks: What’s Your Approach to Investment Management?

Value going upWhat is investment management?

Investment management is the practice of buying, selling, and trading financial assets, with the intention of securing a greater return than the amount paid in. Not everybody is experienced in understanding how investment management works, so it’s important to consult a financial advisor if you’re uncertain.

Good investment management is about looking after your money and will involve finding the investment style to suit your character and risk tolerance as well as your overarching retirement financial goals.

One aspect of this process is finding the right balance of growth stocks v value stocks for your portfolio – but what are they? Below we take a look at the difference between value and growth stocks, and their relevance to successful investment management.

Read More

Select your country

Please select your country of residence so we can provide you with the most relevant information:

You are currently viewing the Blacktower Financial Management EU website.

You may be looking for the Blacktower United States website.

Blacktower United States > X Stay on this site

Or choose your country.