New study video, protection CPD and article

This update covers:

1. New study video - scheduling made easy
2. Maintaining your Financial Protection knowledge through CPD
3. The attack on the landlord

1. New study video - scheduling made easy
“Scheduling made easy” covers how to schedule in 6 simple steps and the advantages of scheduling. You can find more guidance in our Learning to Learn package of online courses free with every purchase.

2. Maintaining your Financial Protection knowledge through CPD
To ensure that all our users are fully prepared for the CII’s new examination syllabus, which started in September 2016, we carried out extensive updates across all of our online materials. The most obvious changes made throughout the materials are the references to the tax year (2016/17), the new tax rates and allowances and the re-working of all associated example calculations and questions.

However, due to some changes in taxation and other laws, there are certain changes which create new impacts on a number of areas important to the provision of advice.

The main changes to the sections for the R05 Financial Protection online course are listed below and are included in our accredited CPD system. All changes have also been reflected in the chapter assessments and the gap analysis assessments.

Although throughout the online courses there are many other minor amendments, as a part of your ongoing CPD it is recommended that you fully familiarise yourself with these major changes to ensure that your knowledge and understanding is fully up-to-date. By using the Wizard Learning accredited CPD system you will have access not only to all these updated courses but also all the learning materials for all of these diploma courses. These can be used at any time to refresh your knowledge of specific areas, and by carrying out gap analysis assessments over the year from each of the subjects as a part of your overall CPD plan, you can use the assessment results to identify areas of weakness against the learning outcomes and plan future CPD activities.

This article ‘R’ you doing the right CPD? covers how to meet the exacting standards for Statement of Professional Standing (SPS) CPD.

R05 Financial protection: Online Multimedia Course

The top 5 areas covered by the major changes to consider first are:

• Single tier state pension changes
• Taxation of  financial products
• Costs of long term care
• Marketing and product development of critical illness policies
• Sales of group and individual private medical insurance

Free trial - Try the CPD system before you purchase
We recommend that you try the Wizard Learning accredited CPD system by requesting a free trial and you will have a week to try it to see how well it meets your requirements. If you have an existing record then login and click on the "My Account" link on the left hand menu. If you have not previously registered then register here, login and then click on the "My Account" link.

3. The attack on the landlord
The Treasury’s attack on the landlord started last year and will continue for the next few.

Let’s look at the three main taxes that apply to a residential buy-to-let (BTL) investment:

Stamp duty land tax (SDLT)
In April 2016 SDLT tiered rates were increased by 3% for BTL investments. An investment costing £250,000 will now incur SDLT of £10,000 made of up £125,000 @ 3% (£3,750) and £125,000 @ 5% (£6,250). Compare this to before April where the SDLT bill would have been £2,500 made up of £125,000 @ 0% and £125,000 @ 2% (£2,500). No wonder there was a mad rush to get purchases through before April!

Income tax
The rent received is subject to income tax at the investor’s marginal rate (20%, 40% or 45%) and must be declared through self-assessment. Certain expenses can be deducted such as the premiums for buildings insurance paid by the landlord, any repairs and maintenance carried out (but not improvements), any fees paid to letting agencies or solicitors and interest charged on a mortgage (this is not an exhaustive list). All these deductions save the landlord income tax at their highest marginal rate.

However, last year it was announced that the amount of tax relief available for interest on BTL mortgages would be restricted to 20% rather than at the landlord’s highest rate of tax.

This is to be phased in over 4 years starting from April 2017, where the deduction will be restricted to 75% of the finance costs and the remaining 25% as a basic rate tax deduction. In 2018 it will be a 50%/50% split and in 2019 it will be a 25%/75% split. Finally in 2020 all finance costs will be given as a basic rate tax deduction. 

The new rules do not affect a basic rate taxpayer, but they are quite a blow to higher tax rate paying landlords who have mortgages on their properties; currently every £100 of mortgage interest paid by a higher rate taxpayer only costs them £60 and for an additional rate taxpayer it only costs £55. When the change comes fully into effect in 2020 this cost will increase to £80 for both.  

However there is another consideration; from 2017 rental profits will be calculated without the deduction of interest costs which will mean that taxable profits will be higher. This could have an impact for a basic rate taxpayer who is pushed into the higher rate band and it could push a higher rate taxpayer into the additional rate band. This would also affect claims for Child Benefit if taxable earnings as a result exceed £50,000, and someone’s personal allowance would start to be reduced if it means taxable earnings are now more than £100,000. Furthermore, the annual allowance for pensions would also be affected if earnings rise to exceed £150,000.

Also in April this year the ‘wear and tear allowance’ on furnished residential letting was stopped. Before this change a landlord could claim 10% of the rent received as tax relief for wear and tear. Now they can only claim tax relief when they actually replace furnishings.

Remember too that any pension contributions made from rental income do not qualify for tax relief (unless it’s a furnished holiday let) and records must be kept for 6 years.

Capital gains tax (CGT)
A couple of changes have occurred here. Since April 2014 landlords who used to live in their rental property can only count the last 18 months for Private Residence Relief. Prior to this date it was 3 years.

This year the chancellor announced reduced rates of CGT except when the gain is from a second property, where CGT rates are still 18% for a basic rate taxpayer and 28% for higher and additional rate taxpayers.

Remember when working out if a capital gain has been made, certain expenses can be deducted such as legal fees, estate agent fees, enhancement costs and stamp duty. Plus, the annual exempt amount can be deducted which for this year is still £11,100.

Inheritance Tax (IHT)
Finally, we should not forget that upon the death of the landlord, the buy-to-let investment is an asset and will therefore form part of their estate for IHT purposes.

In summary, it’s clear that in light of all these changes landlords must be considering their options; they could consider reducing their financing costs, they could transfer the property to a spouse or to a company structure (both these options could have CGT and SDLT consequences), they could put up their rent (according to some press coverage this is exactly how landlords are expected to react) or they could sell up. With all the other legislation affecting landlords (gas safety, smoke alarms, energy certificates etc) perhaps the latter is not such a bad option for some.

Wizard Learning Ltd

Provider of accredited online training and CPD system for financial advisers and financial services professionals.