MANY clergy buy a property as part of a retirement plan, and let it out during their years of ministry. From April 2017, however, the Government will commence a four-year phase-in of a measure named Clause 24: a new method of ascertaining rental profit which will increase the income being reported to HMRC for tax-credit purposes.
Its primary aim is to curb the profits of wealthier landlords; but, unfortunately, it will also affect ministers with mortgages on their buy-to-let properties.
Essentially, this rule will mean that mortgage interest can no longer form part of one’s property profit under self-assessment; a “reducer” applied to the tax calculated will equate to 20 per cent of your mortgage interest. This means that many in ministry may lose part or all of their child tax credits.
LET’S assume a minister receives £7000 per year in rental income, incurs £5000 in mortgage interest, and £1000 in other expenses. The profit under the current rules would be £1000, but once the new rules are fully implemented, the new profit would be £6000. Therefore, an extra £5000 of “income” would need to be reported to HMRC for child-tax-credit purposes.
In addition, clergy who have a student loan could find these repayments increase as a result of this new ruling. Clergy who are higher-rate taxpayers, or will be higher-rate taxpayers after this change, are advised to seek advice to find out the consequences for the tax they owe, besides other implications, such as a restriction in child benefit.
Ministers with buy-to-let properties will also need to be aware, when completing their tax returns for the 2016/17 year onwards, that they may no longer claim for wear-and-tear allowance.