Ringfenced rental losses
On 5th December 2018, legislation was introducedinto parliament that will “ring fence” losses from residential rental. properties.This change is likely to have a significant effect for some of our clients, andwe wanted to give you a heads-up.
For tax purposes, losses will no longer be able to be offset against other income such as salary and wages and business income. Losses will be able to be offset against current year profits from other residential rentals or carried forward to offset against future year residential rental profits. The rules will affect residential properties only.
The new rules willtake effect from the 2019/2020 income year.
What does this mean for you?
If you own a rental property that makes a tax loss, it is likely that your annual tax bill will increase starting from the 2019/2020 income year. If you pay provisional tax, the first payment under the new regime will probably be in August 2019. Note that the government are not proposing to apply the rules retrospectively, so the current tax year (2018/2019) willremain unaffected.
It doesn’t make a difference what structure you use – private ownership, look through company or trust – the rules are designed to work across any structure.
If your rental property makes a taxable profit, or you own more than one residential rental properties and, when added together, they make an overall profit, you will probably be unaffected by this change.
“Ring fenced” losses will carry forward and may be offset against residential rental profits any time in the future, so if your rental property will start making profits within a small number of years, this change may not be a major problem for you. But if you have a negatively geared property that is unlikely to start making profits for a long time, this may affect the economics of your investment.
(As an aside, if you were planning some repairs or maintenance to your loss making rental property, you may like to consider getting the work done before 31st March 2019 if that is possible).
When we do your tax returns next year, we will let you know how this affects your future taxes. If you would like some help in the meantime, please get in touch. fff
The material on this website is for the benefit and information of clients. The items are in the nature of general comments only, and are not to be used, relied or acted upon without seeking further professional advice. Hounsell Accounting Limited accepts no liability for any errors or omissions, or for any loss or damage suffered as a result of any person acting without such advice