Presentation notes: Mortgage interest relief

MPN Member: Elliot Cohen
Business: Shacter Cohen & Bor
Talk date: 19th November 2019

Elliot explained that his accountancy office was based in the centre of Manchester but had clients all over the North West and London & that him and the other 2 client facing Partners were happy to meet clients at their premises or in the firm’s offices.

It is Shacter Cohen & Bor’s policy to meet each client at least once a year.

The 4th Partner Tony Tivnan concentrates solely on tax, tax compliance, Tax Returns, advising clients on tax and dealing with tax matters within the office.

Elliot’s focus in the presentation related to changes in mortgage interest relief that has been phased-in in the past 3 years to the extent that in 2020/2021 a higher rate taxpayer ( one on 40% or 45% ) will only be able to claim 20% tax relief on mortgage interest payments.  Elliot gave examples of how this may adversely affect a higher rate taxpayer who has mortgages or loans, to the extent that taking into account the tax that would be payable, that there could be a negative cash flow position..

The effect of the change in mortgage interest relief can be profound – those claiming benefits of Universal Credit, child tax benefit etc could be affected because of the way the mortgage interest relief is now calculated & presented .

Elliot explained that the firm was advising property investors, particularly those who may be subject to higher rate, to purchase residential properties through a limited company although there are certain disadvantages in doing so e.g the loss of the capital gains exemption allowance on a disposal of a property;  and/or for property investors to concentrate on purchasing commercial rather than residential.

Elliot then went on to explain the forthcoming changes in ‘lettings relief’.  This could apply to any number of people who owned a house, and then let it out for a period, for example, moved away to a different part of the country because of work;  moved in with a partner  etc.

From 6 April 2020 there is to be a change in such circumstances whereby  ‘letting relief ‘ [which could be as much as of £40,000] is a deduction from the gain of a sale of what was once a person’s principle private residence, is totally removed;  and furthermore the concession of a period of exemption from capital gain has been reduced from 18 months to 9 months.

In the example given in the presentation, a person who lived in a property for 2 years, let it for 8 years and now disposes the former home and makes £100,000 gain, would be taxed on £30,000  resulting in a Capital Gains Tax liability of £ 3,240 tax [assuming a basic rate taxpayer earning £25k per annum].

After 6 April 2020 the chargeable gain would be £72,500 – which even for a basic rate taxpayer would result in higher rate tax being paid.  The liability could be, say £15,000 or more.

Elliot explained that this is just an example of why any trader or even small time investor should consult a qualified Accountant before disposing of a property or in fact making any move either in business or regarding personal assets.

Elliot explained that effectively anyone can call themselves an Accountant ;  so when a person seeks some accounting or tax advice they should ensure that their advisor is a qualified Chartered Accountant who has passed the relevant exams, undertakes continuing practice development ( CPD ), has insurance in place and is recognised by HM Revenue & Customs.