Landlords at Risk



The headlines look worrying for property investors and landlords, with concerns that the recent Budget had ..dealt a sledge hammer blow for property investors..” Trust us though, this is doesn’t need to turn out badly; we have solutions that not only lessen the impact but can turn this into a positive outcome.

Now though is the time to worry at least a bit; without the help of an Accountant or Financial Advisor, you could be looking at some hefty (and unnecessary) costs just around the corner.

The Problem Presented by the Chancellor:
Essentially this is about the removal of landlords’ ability to deduct mortgage interest from their rental income; some will end up paying tax even when making a loss.

David Cox, managing director, Association of Residential Letting Agents describes the housing measures announced in the Chancellor’s Emergency Budget:
“In a bid to limit the growth in buy-to-let properties, the Chancellor has announced plans to reduce the amount of tax relief investors can claim on mortgage interest payments. The Chancellor has also replaced the wear and tear costs to a new system that means landlords can only deduct the exact amount that they will incur. However, the unintended consequence of this, and the reduction in income tax is that landlords will seek to recoup their costs by hiking up rents… we need to find the right balance between landlord taxation and tenant aspiration.”

The Chancellor said that financing costs for buy-to-let properties will only get tax relief at the basic rate of 20%. This measure will be phased in over the 4 years from 6 April 2017. The main thing to note here is that this tax change means the removal of a landlord’s ability to deduct mortgage interest from rental income. So even if the landlord experiences as loss, tax will still be due! Landlords will be taxed as if the cost of the mortgage, was not there.

Ilyas Patel of Preston firm Ilyas Patel Chartered Certified Accountants adds:
“Once we get to 2020 and this is fully implemented, it could easily see landlords who pay higher-rate tax, discovering that their tax bill takes out any profit from the rent! Also worth considering what will happen with the combination of this increase in tax and the potential rise in mortgage interest rates – a terrifying prospect for many.”

What’s the solution?
There are some options and most of them are best discussed, in-person with your Accountant or Financial Advisor. Solutions could include elements of the following but will depend on your particular circumstances:
– pay down any buy-to-let mortgages, thus avoiding the new tax
– establishing companies through which to purchase any future buy-to-lets
– disposal of properties with funds getting rolled over into the shares

Do get in touch now as any delay could jeopardise your position, incur additional taxes and leave you with fewer options. We’re happy to offer a free consultation: 01772 788200