This is the first financial year during which new ring-fencing rules will apply. We’ve answered all your questions.
The current tax year – 2019/20 – is the first that will be affected by recently passed loss ring-fencing rules. Since the rules will apply retroactively from the start of the financial year in April 2019, many property investors will be caught unawares by the rule change.
To make sure you’re not, we’ve answered a few of the most common questions about loss ring-fencing.
What do the laws mean?
In a nutshell, the loss ring-fencing laws stop the practice of claiming rental property losses against other salary or business income to reduce tax payable.
There are several nuances and exceptions to the law though, so if you’re unsure, it’s always best to speak to a specialist property tax accountant.
Should I sell my properties?
No. Loss ring-fencing isn’t the end of the world and for most rental property investors, selling property is a massive overreaction.
With that said, if the law change will make holding your investment properties or paying your tax bill difficult, you may need to take a closer look at your portfolio to see if you can improve your position.
Do I need to restructure my portfolio?
In some cases, restructuring your portfolio might be a good idea. That’s because the new law hasn’t stopped investors from claiming losses, it’s just ring-fenced them – you can still claim losses from one property against others provided they are owned by the same entity or group of entities. You can also claim losses forward to use in following years.
If you own one investment in a trust and another under a separate company, for example, it may pay to simplify this structure so that you can claim losses from one property against the others.
Will this impact the property market?
No one can ever know for sure, but the general expert consensus is that these rule changes will have negligible effect on the property market.
With that said, some investors may look to pay for their larger tax bills by increasing rents. If your costs have genuinely increased, this is something you should also consider.
Do I need to change my investment strategy?
In most cases, there will be no need to drastically change your property investment strategy. However, if all (or most) of your properties are making losses, it might pay to take a closer look at your portfolio and consider how you can improve your position now that you can’t claim those losses against your income.
Need a hand preparing your first ever tax return under the new ring-fencing rules? Get in touch with the team here at Property Tax Returns for specialist advice so that you don’t pay a dollar more tax than you have to.
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