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Glasgow
+44 (0)141 221 2984

Edinburgh
+44 (0)131 225 6366

Stirling
+44 (0)1786 451745

Dumbarton
+44 (0)1389 765238

Hamilton
+44 (0)1698 459444

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Blog

Buy-to-let investors will be hit by another tightening of the tax rules in April

The summer 2015 Budget resulted in a variety of tax changes aimed at discouraging buy-to-let (BTL) investment, coming as a surprise to many. In an attempt to ease the impact, the Chancellor then phased in the most significant reform, a revised treatment of interest relief, over four years and deferred its start date to April 2017. Anecdotal evidence suggests some BTL investors did not know what had happened until they received a tax bill in January that was larger than expected.

April 2019 will see the start of the third year of the phasing process, which will mean that over the next year:

  • Three quarters of any interest paid on BTL borrowing will be eligible for a 20% tax credit; and
  • The balance of interest is deductible from rental income, meaning it is fully tax relievable.

If that all looks complicated, the impact becomes clearer when you look at a simplified example. For instance, if a higher rate taxpayer in England had rental income of £12,000 and interest on a BTL mortgage of £8,000, the investors’ net income position is as follows:

Buy To Let Tax Table March 2019 600Px

Potentially, the situation could be worse than the table suggests if, for example, the disappearance of the deduction for interest increases the investor’s gross income to the point that it trips over the £100,000 threshold, at which the personal allowance is phased out.

Interest relief changes and poor short-term prospects for capital growth could result in sales by BTL investors picking up this year. There is another tax incentive to sell on the horizon, too - from April 2020, capital gains tax on residential property (at 18% and/or 28%) will have to be paid within 30 days of sale, whereas the current rules effectively give a minimum of nearly ten months’ grace.

If you are a BTL investor thinking about your options, please get in touch with our tax team.

 

All change for April – check your pay slip

You may not be able to tell at a first glance that there is any difference from your March pay slip, but it is worth giving your April slip a closer look than usual.

All employees should always check their April pay slip, even if you pay little attention to the other eleven you receive over a year. The items to check include:

  • Salary: Pay rates often change from 1 April, usually coinciding with the start of their new financial year. If you were notified of a pay increase in March, it is worth making sure the amount on the April pay slip agrees with what you were told.

  • Tax code: Your April pay will be the first for the 2019/20 tax year and your PAYE tax code will most likely have changed from what was on your March pay slip. If you are entitled to a full personal allowance and have no deductions, your code number should increase by 65, reflecting the £650 increase in the personal allowance.

  • National insurance contributions (NICs): The starting point for NICs rises by £4 a week while the upper earnings limit (the top level of earnings on which you pay full 12% NICs) jumps by £70 a week. Therefore, if your annual earnings are more than £46,600 a year, you will be paying more NICs from April. If you earn over £50,000 a year, your extra NICs will be just over £28 a month.

  • Pension contributions: Contributions are generally linked to salary, although not necessarily your full pay, so should increase if you have an April pay increase. If you are in an automatic enrolment pension scheme, your contributions are usually based on “band earnings”, which were £6,032–£46,350 in 2018/19 and are £6,136–£50,000 in 2019/20. The contribution rate will rise, too, and will depend upon your employer’s contributions. You might see the rate increase by two thirds to 5% of band earnings (4% after basic rate tax relief). If your pay in April is lower than in March, the auto enrolment change could be the culprit.

For more insight on the impact of the tax, NICs and pension deductions from your pay, please get in touch with our Payroll team.

New Corporate Insolvency Rules for Scotland

In the Autumn of 2018, two new sets of corporate insolvency rules were released in Scotland, both of which will come into effect on 6 April 2019 and will mark the most significant changes to insolvency working practices in Scotland in over 30 years. These much anticipated rules are The Insolvency (Scotland) (Company Voluntary Arrangements and Administration) Rules 2018 and The Insolvency (Scotland) (Receivership and Winding up) Rules 2018 and the intention is to consolidate, modernise and harmonise procedures in Scottish corporate insolvency. Following on from the Insolvency (England and Wales) Rules 2016 introduced on 6 April 2017, Scotland has two sets of rules because it has a partially devolved corporate insolvency regime, however, many of the new provisions are similar if not the same as those contained within the England and Wales Rules, but please beware as there are also some differences too.

With just one month to go until these rules are implemented - how ready is the Scottish insolvency profession? We are obviously living in uncertain times, in particular, Brexit uncertainty, with ‘B’ Day set to happen on 29 March 2019, just a few days before implementation of these new rules. This could result in chaos if the profession is not prepared especially given that more insolvencies and financial casualties are anticipated due to the insecurity of Brexit.

Being fully prepared for the practical effect that these new rules will have on corporate insolvency procedures in Scotland is therefore essential, so it is recommended that the rules are read and digested now and practical processes implemented in readiness. The rules will apply to all new and existing appointments from 6 April 2019 onwards except for some minor transitional and savings provisions laid down in Schedule 2 of each set of rules.

In total, both sets of Rules comprise over 300 pages of legislation and the structure and layout of the rules is different to the current format. Whilst the new rules aim to be consistent in style and format, as there are common parts and specific parts, it will often be the case that more than one rule will be required to be referred to when navigating in respect of a particular insolvency process. The rules also move away from the use of prescribed forms for certain gazette notices, Registrar of Companies and the Accountant in Bankruptcy to a requirement to prepare notices with standard contents as laid down in the rules.

To help the profession, the Accountant in Bankruptcy has, very helpfully, prepared a Tables of Derivations and Destinations to assist with comparing the new legislation to the existing legislation, this is available at: https://www.aib.gov.uk/sites/default/files/2018_ci_rules_-_collated_derivation_and_destination_tables.pdf

In addition, there will be new Statements of Insolvency Practices issued in due course and some will be repealed.

If you have any queries regarding the new rules, please click here to get in touch with our team.

Insolvency Rules Breakfast Briefing

We are hosting a breakfast briefing at our Glasgow office on Wednesday 13th March which will focus on the new rules, please click here to find out more and to book your space.

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