There are some significant changes coming during 2017 with regard to Buy to Let property. Buy to Let investors are already subject to higher rates of Stamp Duty Land Tax (SDLT) than an owner occupier, but the upcoming changes will further ‘squeeze’ landlords and their returns.
Until recently buy to let Landlords have been able to claim tax relief on the interest on mortgage payments they have on their properties. This is being ‘cut back’ over the next three years to zero (2017-2020). Basically, if you are a higher rate tax payer and your mortgage interest accounts for 75% or more of your rental income your return will be ‘wiped out’ by the tax changes. As a result many Landlords are currently either looking to transfer their buy to let properties into the name of a spouse who is a basic rate tax payer, or to a limited company on whom the new changes do not impact. In both instances, HMRC would view this as a change of ownership, and as such there may be a Capital Gains Tax liability to pay. Additionally, if transferred to a limited company there would be less choice of mortgage lenders who would lend on a property held in this way. There will also be an increased tightening of rules relating to allowances on ‘wear and tear’ deductions on properties, and all deductions made will need to be evidenced.
As most Landlords will no doubt be aware mortgage lenders now apply a ‘stress test’ to all buy to lets to ensure that the mortgage payments are affordable. From September 2017 Landlords with four or more buy to let properties will have this stress test applied across their portfolio. This shouldn’t cause an issue in the current climate, however if we see a fall in property prices and the loan to value level of the portfolio is affected placing the mortgages on the properties within a portfolio may prove problematic.
The above changes have potentially far reaching implications and as such we would strongly recommend that any Landlords out there seek the advice of their accountant or tax adviser before making any decisions or changes to their current arrangements. We can put you in touch with a highly regarded accountancy firm for advice on this.
One 77 Mortgages provide fee free mortgage and protection advice to our customers from around the UK. We deal in all forms and sizes of buy to let, and can also deal in other forms of property finance including auction finance, bridging finance and commercial mortgages.