Tag Archives: Buy To Let

Buy-to-let – the new rules are coming

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If you cast your mind back to the 2015 summer budget, you may remember the significant changes that will impact all landlords. The implementation date of these changes is drawing ever closer and it will eat into landlords’ profits and, in some cases, may wipe them out completely.

With the slashed tax relief and added stamp duty, you may feel that someone has got it in for buy-to-let landlords. The question is what can you do about it?

What does the loss of tax relief mean?

This is one of the biggest changes to buy-to-let and now means that people buying to let residential property will no longer be able to claim tax relief on their mortgage interest payments at their marginal rate of tax. Before the changes this meant that basic rate taxpayers would get 20% tax relief, but those at a higher rate would receive 40% or 45% in tax relief.

What’s changing?

The changes mean that the tax relief will be a flat rate of 20%. Basic rate taxpayers, in most cases, will not see any changes, but those on higher incomes will find themselves losing much more in mortgage interest payments.   Also, more landlords may find themselves unexpectedly moving up into the higher rate tax bracket because of the way the new rules work.

To provide some perspective, here’s an example:

A landlord with a £150,000 buy-to-let mortgage on a property worth £200,000, with a monthly rent of £800, would currently have a net profit after tax of around £2,160 a year. With the lower tax relief, the net after-tax profit would be reduced £960.

Overall, the higher the interest you pay, the more you will feel the changes.

However, the full impact of the new rules is not felt immediately, as these changes will be gradually phased in from 6 April 2017, with transitional rules in place until April 2020. During the transition, the amount of interest directly deductible from rents will reduce and the proportion deducted as a fixed 20% credit will increase. This means in the transitional period landlords will be able to claim:

Tax year Interest deductible from profits Interest at fixed basic rate credit
2017/18 75% 25%
2018/19 50% 50%
2019/20 25% 75%

Income tax on property gains!

New rules announced last year, designed to target non-resident companies and individuals from escaping UK tax on profits made from the sale of UK properties, could inadvertently impact UK landlords. The new rules seek to charge the profits on selling UK property to UK income tax rather than CGT when the ownership of the property is more in the nature of a trade than a fixed investment.

When the changes were announced, there was widespread concern that UK landlords could be affected.

HMRC have now addressed this by releasing a 64-page guidance document to help clarify how they will seek to operate the rules.  In the guidance, they state that the new rules will not apply to businesses which buy properties in order to generate rental income, even if these businesses also enjoy an uplift in market value of the property. So the average UK buy-to-let landlord should not be subject to income tax on the gains he makes when he sells properties which were acquired for letting.

Whilst this is good news, it is only HMRC guidance and not law. For those particularly concerned about this new legislation, the position can be clarified with HMRC under their non-statutory clearance application process.

The PM+M tax team will be hosting seminars in Blackburn, Burnley and Bury to provide answers and insights into what buy-to-let landlords can do to protect their position.

For more information or to book a place, please click the button below or call 01254 679131.

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Calling All Landlords…

shutterstock_309255455There have been a lot of changes recently involving tax allowable expenditure and various legislation changes that could have landlords paying hefty fines for non-compliance.

The latest regulation changes landlords are facing are the new ‘right to rent’ checks. This means that from 1 February landlords risk a fine of up to £3,000 per tenant if they let a property to a prospective tenant without first checking they have the right to reside in the UK.

These checks have to meet the following requirements:

- Conducted within 28 days before the start of the tenancy;
- Conducted as specified by the Government and an appropriate record kept.

The Government has recently launched an online checking tool which can be used by landlords to conduct the right to rent checks and can be found here: http://buff.ly/1Wq9EaZ

So what if you’re considering becoming a landlord but are put off by the strict regulations you have to adhere to? Whilst the Government are introducing more and more legislation of late, it is important to remember there are still some benefits of becoming a landlord.

If you’re a landlord worried about the impending changes to the legislation, or if you’re considering becoming a landlord and would like to understand what is involved, please get in touch with Jonathan Cunningham (jonathan.cunningham@pmm.co.uk) or call 01254 679131.

We are running a Buy-To-Let seminar to guide you through the recent changes and how you can maximise your tax efficiency with simple and practical advice. To book, please click the button below.

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Impact Of Tax Changes For Buy To Let Landlords

shutterstock_286835846We are all aware of the major curve balls that were announced in George Osborne’s Post-Election budget this summer. One of the biggest losers from the announcements are buy-to-let property investors who could potentially see their tax bill more than double.

The major issue that has emerged from the announcements is that the landlords’ ability to deduct the cost of their mortgage interest from their rental income when calculating their tax has been removed. The wealthiest investors, who do not have any mortgages, are unaffected.

The change is due to be introduced in 2017 and fully implemented by 2020. The new rules will wipe out any profits for landlords with mortgage interest being 75% or more of their rental income, net of other expenses. Those paying additional-rate taxes will see their returns on investment disappear once mortgage costs reach 68% of rental income.

Looking into the future, it will become very difficult for middle-income borrowers to get into the buy to let market and those that have just entered the buy to let scheme face some issues in the next couple of years.

One solution for buy to let landlords might be to operate their business via a limited company. However, this option won’t be beneficial for all investors, individuals will need to take advice to determine which structure will be most appropriate for them.

If you are worried about the tax changes and if you would like any advice on what to do next, please contact Jonathan Cunningham at jonathan.cunningham@pmm.co.uk or call 01254 679131.