Tax
Some landlords are still unaware that they are now unable to offset all their mortgage interest against their profits. Within three years none of the interest will be tax-deductible. The changes mean that many landlords will pay more tax – and in some cases, may be taxed even if they do not make a profit.
The reduction in relief is being phased in between now and 2020 and will be replaced by a 20% tax credit. Landlords can currently offset only 75% of their mortgage interest against their profits. This falls to 50% next year, 25% in 2019 and zero in 2020. For more information click here.
Of course, it’s not all bad news, rental yields are often excellent and property investment has still outperformed the stock market, and most other asset backed investments in the medium to long term.
LTD Company Buy to Lets
The changes in tax have resulted in the rise in popularity of Landlords putting their buy to let properties in Ltd companies. The rules allow clients to either use their existing trading limited company or so set up a new “Special Purpose Vehicle” (SPV).
Although this sorts the problem of additional income tax out, Ltd companies do of course pay corporation tax.
Anyone considering buying a new property through a Ltd company or transferring in existing property should consult their tax adviser before proceeding.
Stamp Duty
The government hit landlords where it hurt by introducing higher rates of SDLT, on 1 April 2016. The additional 3%, is intended to apply to purchases of additional residential properties, such as second homes as well as buy to let properties.
Portfolio Landlords
In September 2017, the Prudential Regulatory Authority outlined new rules for “Portfolio Landlords,” which have resulted in additional checks being carried out.
Most lenders define “Portfolio Landlords” as borrowers with 4 or more buy to let properties. Anyone falling into this category will find the process very different when they come to buy another property or re-mortgage an existing one.
Typically, lenders will want to see some or all of the following documents:
- Existing portfolio details, including property address, lender, mortgage amount, mortgage interest rates and rental income
- Personal Statement
- Cash Flow Forecast
- Statement of Assets and Liabilities
Until now, buy to let lenders have underwritten cases on an individual property basis, taking little or no notice of other properties in the portfolio, or any residential mortgage the borrower may have. If the rent covered the mortgage and there was sufficient equity in the property – lenders would lend. In fact, there was no stopping them!
To understand why the PRA have implemented these changes, we have to think the worst. Imagine a landlord with 10 buy to let properties with 85% mortgages on, earning £20,000 from their full-time employment with a residential mortgage of £80,000.
If a situation arose where a tenant could not afford to pay the rent there is little chance of that landlord being able to supplement the rent and get the mortgage paid. If the situation worsened and the lender needed to start repossession proceedings, there is a tenant who needs evicting which can take time. Meanwhile if arrears are mounting up, there is a strong chance the lender will not be able to recoup their losses
If the same situation arose where a landlord earning £120,000 had the same 10 properties with 30% mortgages on, he may be in a better position to supplement rent arrears and the outcome would be very different.
It’s all a question of risk
Conclusion
I think we can conclude that the Buy to Let landscape is changing. The government fully intends to collect more tax from landlords and the option to buy and rent out property may no longer be open to just anyone who can raise a deposit.
We have certainly seen a shift at the bottom end of the market where there are more first-time buyers around, but as far as the professional landlord is concerned, it seems to be business as usual.
For more information contact us on 01628 507477.
Related articles:
Recent posts
Budgeting over the Christmas Period
3 days ago
The most wonderful time of the year can easily turn into the most expensive time of the year. Watching the pennies doesn’t mean that the Christmas festivities have to stop, following a few budgeting tips can mean you still have a special Christmas and don’t go into the new year in debt.
Preparing your home to sell in winter
7 days ago
December is usually a less desirable time to buy as many people don’t want to move over the holidays. However, prospective buyers do start to look at this time. Selling your home in winter may require a bit of extra attention to showcase your property at its best.
We look at why mortgage rates increased following the Bank of England's choice to reduce the bank rate, and should you fix now?
UK 2024 Autumn Budget: Housing
30 Oct 2024
On 30th October 2024 the Chancellor, Rachel Reeves delivered the Autumn budget which we had previously been warned would be “difficult”. Below we have summarised the main housing points.
Talking about money with kids
23 Oct 2024
In an increasingly cashless society, money is an intangible concept for children to grasp. In the days of coins and notes, kids could see money as something physical you require to purchase goods and services.
In order to help teach your children about money, we have listed some tips below;
Labour Autumn Budget Predictions: Housing
18 Oct 2024
The UK’s chancellor, Rachel Reeves will deliver the Labour government’s autumn budget at the end of the month, we take a look at what could be announced in relation to housing.
Recent research from Halifax has revealed the most sought-after locations for first time buyers in Britain.
The data which was taken from the Halifax House Price Index looked at areas outside of London where those looking to purchase their first property were buying. Despite high property prices and increased rates, these first time buyer hotspots have remained popular.
How can I look after my mental health?
7 Oct 2024
Taking care of your mental health means looking after your emotional, psychological, and social wellbeing. There are several ways we can practice self-care that will help to improve our physical and mental health. This can help to reduce our risk of illness, manage stress, and boost our energy levels!
More information
Trusted by
