Landlords are gearing up for the new tax changes due to be implemented from April following the Chancellor’s decision in 2015 to cut mortgage interest tax relief.
The Government will phase out higher rate tax relief on mortgage interest for buy-to-let properties.
The maximum relief for higher-rate taxpayers will fall to 20% in 2020.
The fall out of that decision understandably will be a huge concern for landlords given they will now earn little to no profit from their investment while renting.
Limited companies are not affected by the changes by mortgage interest tax relief so many landlords are setting up a company to minimise the impact of the new tax regime.
However, be warned, HMRC will treat any transfer of ownership of a property as a sale, so there could be capital gains liability.
Moving to a limited company could also mean mortgage options will be less attractive as lenders offer a restricted choice of home loans to companies.
Another consideration is that a landlord could transfer ownership of the property to a spouse or partner who is in a lower tax band but again, there are capital gains tax implications.
The hard stance on landlords does not stop at mortgage interest.
Along with the interest tax relief the chancellor also imposed tighter restrictions on the wear and tear allowance too where landlords will no longer be able to automatically deduct 10% of their rental profits as wear and tear.
They will be able to claim tax relief only on costs they have actually incurred and will have to keep receipts.
Previously, landlords could write off the 10% even if they had not spent a penny on repairs or replacements.
And, of course, further impacting investors is the rise in Stamp Duty for landlords.
All in all if you are in it for the long haul you will still realise a healthy capital appreciation.
But if you were hoping to reap a pot of money from the rental income think again. Only the taxman wins.
Dawn Sandoval is the owner of Dawn Sandoval Residential in Canary Wharf
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