Accountants warn of cash crunch for landlords
- 28th March 2012
- Landlord Property News
Two tax bills in six months for buy-to-let investors, covering taxable profit for a two year period.
The reason so much tax is due in such a short space of time is that:
- Tax for the 2010/11 tax year and half of the tax for the 2011/12 tax year was due by January 31 2012.
- The remaining half of the tax for 2011/12 falls due on July 31 2012.
Landlords whose properties were more profitable than expected in 2010/11 will not have paid their tax for that period upfront, meaning that thousands of pounds in tax will be due within a six month window.
Stephen Ludlow, Chairman of ludlowthompson, explains: “Many landlords entered into discounted tracker mortgage deals that became very cheap during the 2010/11 tax year, making their investment more profitable than expected.
“Tax on that profit was due at the end of January and landlords will face another tax deadline at the end of July, potentially putting a real squeeze on their cash-flow.”
Provisional tax liability is based on a taxpayer’s taxable income from the previous year. That means sudden increases in income mean the taxpayer has to pay the tax for the year in which they became more profitable and the higher rate for the year ahead in a short space of time.
Adds Stephen Ludlow: “Some landlords will be hit harder than others because the discount period of their tracker mortgage has come to end, reducing their monthly gross profit. That will make it harder for them to pay HM Revenue & Customs all the tax that is due in this short period of time.”
The prediction that landlords face a tax related cash crunch in 2012 follows news that HMRC will be undertaking more tax investigations of buy-to-let investors this year.
Landlords will face another tax deadline at the end of July, potentially putting a real squeeze on their cash-flow.
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