Recent Changes in Tax for Landlords

Date Published 18 January 2017


If you're a buy-to-let landlord, you must be feeling that Government has got it in for you. First they slashed tax relief, and then they added extra stamp duty. This has clearly had an impact on your profits but what can you do about it?

What's changing?
Current legislation allows you to claim tax relief on your mortgage interest payments at your normal rate of tax – ie if you are in the 40% tax band, you can recover 40% relief.

Over the next three years, tax relief will gradually be reduced to a flat rate of 20%. Landlords who pay basic rate tax would see no change, but if you are in the 40% tax band you will lose more in mortgage interest payments.

What's the answer?
What probably won't work is increasing the rents to compensate. Most tenants won't stand for it and there are other properties for them to move to - but there are a few other options open to you:

1. You could switch to a shorter-term fixed rate mortgage at a lower rate.

2. You could re-structure the ownership into a limited company. You would then pay corporation tax (currently 20%) rather than income tax on your profits. Fewer providers lend to companies so your mortgage options will be reduced.

3. If your spouse pays a lower rate of tax, you could transfer ownership of one or more properties to them – but mind the income does not lift them into a higher tax band.

Where are the advantages of this change?
• If you're a landlord with a lower income, you're no longer at such a disadvantage to those in the big league.
• This might in fact help the new wave of ‘silver landlords' hoping to use their pension pots to buy rental property.
• If you're looking to buy, there will probably be less competition from buy-to-let purchasers.

If you would like to discuss this or any other property matters, please either call the office on 020 7602 2352 or drop in at any time.