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Landlords to receive less tax relief on interest

The new changes will impact residential landlords and the amount of tax relief available on property financial costs. Moving forward, landlords will receive a basic rate reduction from their income tax liability, rather than being able to deduct all financial costs from the property income. The changes will not affect residential properties held by companies.

The changes will be phased in over a four-year period in 25% decremental reductions

in 2017/18, the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction;

in 2018/19, 50% finance costs deduction and 50% given as a basic rate tax reduction;

in 2019/20, 25% finance costs deduction and 75% given as a basic rate tax reduction;

from 2020/21, all financing costs incurred by a landlord will be given as a basic rate tax reduction.

There are additional rules which could further restrict tax relief which is due in circumstances where the property, or individual’s total income, is less than the basic tax relief threshold.

Please get in touch if you would like further guidance on this topic.

Internet link: GOV.UK guidance

Apprenticeship Levy

Large employers will be required to pay the new Apprenticeship Levy which is being introduced from 6 April 2017. There will be a £15,000 annual allowance, after which the Levy will be cost 0.5% of the employer’s pay bill. The annual allowance will be allocated on a pro -rata basis throughout the tax year. HMRC guidance requests employers will need to report their Apprenticeship

Levy liability each month:

  •  from the start of the tax year if: – their annual pay bill (including any connected companies or charities) in the previous tax year was more than £3 million – they believe their annual pay bill (including any connected companies or charities) for the tax year will be more than £3 million
  •  if an employer’s annual pay bill (including any connected companies or charities) unexpectedly increases to more than £3 million. In which case the employer will need to start reporting when this happens.

An employer’s annual pay bill is all payments to employees that are subject to employer Class 1 secondary NICs. Broadly wages but excluding benefits and expenses. HMRC have confirmed that employers must include payments to employees for whom there are no employer NICs including:

  •  all employees earning below the NIC lower earnings and secondary thresholds
  •  employees under the age of 21
  •  apprentices under the age of 25

The Apprenticeship Levy will need to be reported each month on the Employer Payment Summary (known as the EPS) and should include the following:

  •  the amount of the annual Apprenticeship Levy allowance which has been allocated to that PAYE scheme
  •  the amount of Apprenticeship Levy you owe to date in the current tax year

HMRC have confirmed that it is not necessary to report Apprenticeship Levy if the employer has not had to pay it in the current tax year.

Reference: GOV.UK apprenticeship levy