It’s tax return season, which means you are likely to have clients who need to raise cash quickly to pay a bigger than expected bill. So, what are your options?
This year’s tax return deadline is likely to take more people by surprise than other years, as it’s the first submission that includes reduced tax relief for buy-to-let landlords.
And it’s not just landlords that are feeling the pinch from a bigger than expected tax bill. We are working with the CEO of a company that has grown so quickly, he had underestimated his tax liability.
Fortunately, it is possible to use a second charge mortgage to raise funds to pay a tax bill. There are lenders that are happy to lend money for this purpose and they will generally want to know why the client didn’t have provisions in place to pay the bill and that they are able to pay future bills.
More and more clients are exploring the use of a second charge mortgage to pay a tax bill and prevent proceedings by the HMRC. This could possibly be because the HMRC stopped accepting payment of tax bills by credit cards on 13 January last year, and so mortgages became a preferred option for those who do not have the capital ready to clear the bill.
There are, however, some considerations. First, it’s best practice that people address their HMRC tax matters sooner rather than later. It is also important that they maintain a dialogue with HMRC as this is the best way to try to resolve any issues which may have arisen as a result of a tax inquiry.
Many landlords are also now looking to second charge mortgages to meet the increased costs associated with owning buy-to-let property. Changes to the income tax treatment of buy-to-let may have been announced some time ago, but the financial impact of these changes are only just starting to hit landlord’s in the pocket.
Tax returns for 2017-2018 submitted for the end of January 2019 deadline are the first to include the staggered removal of mortgage interest tax relief on rental income. Consequently, many of those returns will result in a larger than expected bill.
The first year that the rules came into effect was for the year ending 5 April 2018, but as the due date of this tax year is 31 January 2019, people will be feeling the ‘pinch’ for the first time soon.
So, for your clients who have been hit with an unexpected tax bill, a second charge mortgage may provide the solution. Give Brightstar a call to discuss what’s possible.
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