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Tax rules changes from April 2017

Income Tax: personal allowance and basic rate limit for 2017 to 2018

From 6th April 2017 the personal allowance will increases to £11,500 for 2017/18. The basic rate limit will be increased to £33,500 for 2017/18. As a result, the higher rate threshold will be £45,000 in 2017 to 2018.

National Living Wages

From 1 April 2017, the national living wages will be £7.50. So from April if any of your employees are currently earning less than National Living Wages per hour should be increased to £7.50 per hour.

Earn extra £2000 from ‘Occasional Jobs’ tax free

From April 2017 you can earn £1,000 tax-free extra income from ‘occasional jobs’ each tax year – for example, using your skills or time or selling your things to earn more cash.
From car boot sales to Facebook and eBay, from baking to making things, from pet sitting to baby sitting or renting a room out on Airbnb.
Plus – you can earn an extra £1,000 tax-free from property related income – such as renting storage space in your loft, or your parking space.
It’s really worth planning for this now as it can be a nice little earner for anybody.

Restrict relief for Finance Costs

This measure will restrict relief for finance costs on residential properties to the basic rate of income tax and will be introduced over four years from 6 April 2017.

The measure will not affect companies renting out property.

The measure will not affect individuals renting out commercial property or furnished holiday letting.

The measure will affect residential property in the UK and elsewhere.

The measure will affect mortgage interest, interest on loans to buy furnishings and fees incurred taking out or repaying mortgages or loans.

Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

Landlords will be able to obtain relief as follows:
Finance cost allowed in full Finance cost allowed at basic rate
Year to 5 April 2016 100% 0%
Year to 5 April 2017 100% 0%
Year to 5 April 2018 75% 25%
Year to 5 April 2019 50% 50%
Year to 5 April 2020 25% 75%
Year to 5 April 2021 0% 100%

The tax reduction is the basic rate value (20% for 2017/18) of the lower of:
1. Finance costs – costs not deducted from rental income in the tax year (this will be a proportion of finance costs for the transitional years) plus any finance costs brought forward
2. Property profits – the profits of the property business in the tax year (after using any brought-forward losses)
3. Adjusted total income – the income (after losses and reliefs, and excluding savings and dividends income) that exceeds your personal allowance.

The tax reduction can’t be used to create a tax refund.

If the basic rate tax reduction is calculated using the ‘property profits’ or ‘adjusted total income’, then the difference between that figure and ‘finance costs’ is carried forward to calculate the basic rate tax reduction in the following years.

These changes were made by the Finance (No2) Act 2015 section 24, which effectively made amendments to:
• Income Tax (Trading and Other Income) Act 2005 sections 272A and 272B introduced
• Income Tax Act 2007 sections 399A and 399B introduced (relating to property partnerships).

No changes were made to corporation tax legislation relating to this matter