Tax Saving Trust Declaration

Tax Issues for Landlords – Removal of finance costs and utilising a Declaration of Trust / Tax Saving Trust Declaration.

Tax Saving Trust Declaration

  • It is essential that landlords scrutinise very carefully their income and expenditure to reduce the amount of tax payable to HMRC
  • The withdrawal of finance costs as a fully deductible allowance began in tax year 2017-18 and the allowance will be fully withdrawn by 2020-21.
  • Landlords will receive basic rate tax relief at 20% of the finance costs and it is important to note the following which has applied since tax year 2017-18. 

Finance Costs

  1. Finance costs cannot be deducted as expenditure against rental income and therefore the gross rental profit will be considerably higher than when previously deducted as an allowable expense. As an example if the gross rental income is £10000 with £2000 allowable expenses and £6000 finance costs the net profit increases from £2000 to £8000
  2. The changes are being phased in over 4 years but the basic rate tax relief at 20% of the finance costs is allowed and therefore in the above example a basic rate tax payer with employment income below £42000 in 2019-20 would not experience any increase in tax by the time of full withdrawal in 2020-21. The addition of the full £8000 profit would still not breach the upper 40% threshold of £50000 for tax year 2019-20.
  3. A tax payer with employment income of £48000 would previously have remained in the lower 20% tax band but the increased profit now results in breaching the 40% tax band with an increase in tax payable
  4. Landlords may face additional tax increases if the total income breaches the Child Benefit threshold whereby the benefit is reduced by 1% for each additional £100 income above £50000 up to a maximum of 100% at £60000.
  5. Any previous losses brought forward to use against rental profits can still be utilised but are rapidly reduced since the figure used is the profits without deduction of finance costs or any tax relief.

Options 

There are many options for a landlord to consider with the objective of minimising the effects of the removal of the finance costs. 

However , the most straight forward method is to utilise a Trust Declaration to agree beneficial interest in the rental property with a spouse, partner or other family member thereby allowing all the rental income to be allocated to that person and taking advantage of any unused personal allowance or lower tax band. The resulting tax savings can be very significant. 

Tax Saving Trust Declaration information for joint owners of a property 

A Trust Declaration will allow you to allocate your rental profits to a spouse or civil partner in order to maximise any potential tax savings that are available. The Trust Declaration is completed by yourselves and your signatures witnessed.

The original is retained by yourselves and a copy is sent to HMRC along with their Form 17. Your rental income can be allocated according to your Trust Declaration from the date of signing the document. You would agree the allocation to use up any tax free personal allowance or lower tax banding.

Please note that this procedure is perfectly acceptable to HMRC and further information can be obtained by here at the HMRC site.

  • We can supply the Tax Saving Trust Declaration document and instructions on its completion for £39 and the cost includes advice on completing the documentation and the additional service of any later guidance and clarification on any issues regarding the Trust Declaration.
  • The Trust Declaration is supplied as a PDF document and can be reused if you wish to change your agreement at some future date.

 If you are happy to proceed with the Trust Declaration and pay by Internet Banking our account details are as follows:

Name: Tax Landlord Ltd
Sort Code: 05-03-73
Account Number: 71440026
Business Account: Yorkshire Bank, Cleckheaton

We also provide a self assessment tax return service for £59 for one person which covers personal income and income from one property. The service would be provided at a discounted £39 on purchase of the Trust Declaration. The cost for tax returns for two people and one property would be discounted from £99 to £79 for the first year. Each additional property is £25.

Please do not hesitate to get in touch by email to paul@taxlandlord.com if you require clarification on any matters or if you wish to purchase the Trust Declaration
 

Trust Declaration information for the sole owner of property

 A Trust Declaration will allow you to allocate your rental profits to any another person in order to maximise any potential tax savings that are available. The Trust Declaration is completed by yourselves and your signatures witnessed. Since you are the sole owner of the property the Trust Declaration is retained by yourselves and would be produced to HMRC in the event that they wished to see evidence of your agreement –  joint owners must send a copy to HMRC along with the HMRC Form 17.

Please note that this procedure is perfectly acceptable to HMRC and further information can be obtained here on the HMRC’s site. 

  • Your rental income can be allocated according to your Trust Declaration from the date of signing the document. You would agree the allocation to use up any tax free personal allowance or lower tax banding.
  • We can supply the Trust Declaration document and instructions on its completion for £39 and the cost includes advice on completing the documentation and the additional service of any later guidance and clarification on any issues regarding the Trust Declaration.
  • The document is supplied as a PDF document and can be reused if you wish to change your agreement at some future date.

If you are happy to proceed with the Trust Declaration and pay by Internet Banking our account details are shown above in the section relating to jointly owned properties.

The same benefits apply to the tax return service regarding the prices and resulting discount from purchasing the Trust Declaration

Please do not hesitate to get in touch by email to paul@taxlandlord.com if you require clarification on any matters regarding the Trust Declaration for a sole owned property or if you wish to purchase the document.