Government Raid on Landlords
The 2015 Summer Budget and Autumn Statement will not have been highlights for landlords of residential property in the UK.
The loss of the Wear and Tear Allowance and the additional 3% Stamp Duty Land Tax surcharge on additional properties will frustrate many, and possibly lead to changing of plans.
However, these announcements are a drop in the ocean compared to the potential effect of the loss of higher rate tax relief on mortgage interest payments.
From April 2017, there will be a gradual reduction in the amount of mortgage interest that can be claimed against profits from residential property lets. This means that by the tax year commencing on 6th April 2020, only basic rate tax relief will be available on mortgage interest.
In very simple terms, if a landlord’s total income, including rental profits but before deduction of mortgage interest, pushes them into the higher rate tax band, they will face a substantial additional tax liability that they would not have faced before.
In some cases, even if the landlord is making no rental profits (or even losses) after the payment of mortgage interest, a tax liability could become payable.
For example, a landlord paying just £10,000 in mortgage interest each year could face an additional annual tax liability of between £2,000 and £2,500. Could you afford this?
If you are letting residential property as a landlord, you may be affected by the incoming changes.
However, there are options available to you to mitigate the effect on your post-tax income.
These options could include:
- Holding property in family members’ names
- Considering other alternative investments alongside the property portfolio
- Use of management companies
- Incorporation of portfolio to a limited company
However, there are many tax traps that could be set off by making changes to your portfolio without professional advice.
At A4G, working with property agents and solicitors, we specialise in advising landlords with portfolios of all sizes, to ensure that they have the best advice relating to their particular circumstances.