Preparing for buy to let tax changes

Preparing for buy to let tax changes

Buy to let tax benefits are still good to the tune of almost £17bn, despite government changes to the system set to come into force by 2020.

Taxation relief for landlords enables them to offset rental expenses like property repairs and management fees, but the government's phased scheme reducing relief on mortgage interest will continue to shrink in the coming years, falling to 50% in April, 25% in 2019 and 20% in 2020.

Yet government numbers show landlords benefitted from £16.7bn in tax relief in the past 12 months - a considerable figure with change on the horizon.

More than £7bn was claimed in tax relief on mortgage interest and other financial burdens, while £3.7bn was claimed for property repair and maintenance.

Chancellor Philip Hammond and the Treasury look set to make hay to the tune of £840m a year in extra landlord taxes by 2020-21, however.

Despite digging their heels in and holding firm in the main, however, many landlords are pondering options to keep their tax liabilities manageable.

Those who hold their buy to let property portfolio in a limited company have a degree of scope to mitigate the tax changes, given the phasing out of relief only affects private landlords. 

But beware: HMRC is already on the lookout for signs of private landlords moving their portfolios into so-called 'beneficial interest company trusts', in case the moves are being made solely for tax purposes.

Other landlords are looking to move their properties into traditional limited company structures, but the risks are still there as doing so in order to benefit from a lower corporation tax rate would require remortgaging - affecting cheap mortgage deals previously available to buy-to-let borrowers.

Before considering the options available, including weathering the storm, Martin & Co recommends considering your long-term investment goals as well as the here and now and current market conditions - and, of course, seek professional advice from an independent financial advisor.

If you'd like more advice on buy to let mortgages or landlord tax advice you can contact your local Martin & Co office.