Are all private landlords having it tough?

It’s undeniable that the buy-to-let sector has taken a hit following a raft of tax and regulatory changes over the last couple of years.

With all the recent changes to the tax treatment of landlords, more and more Buy to Let investors are now seeking the help of professional accountants and business advisors to steer them through the maze of property investment. Below is a short Q & A summary of some of the changes that have taken place and the impact they are having on potential profitability. 

Why are landlords so concerned?
Many say it started with the March 2016 Budget which introduced the scrapping of the 10% wear and tear allowance for landlords of furnished residential properties and introduced a 3% Stamp Duty Land Tax (SDLT) surcharge on second homes.

Weren’t there also changes to the lending criteria for landlords?
Yes, from 1 January 2017 the Prudential Regulation Authority rules introduced tougher lending criteria to make sure buy-to-let investors can cope if there’s a sudden rise in interest rates. Under the new rules, it became harder for many to obtain finance for buy-to-let investments and the application process took longer.

Of all the changes what’s the biggest financial impact?
The biggest financial impact on many landlords has been Section 24 of the 2015 Finance Bill which introduced rules from 6 April 2017 to limit the amount of mortgage interest which could be offset against taxable profits.

So, has every Landlord had to pay more tax from 6 April 2017?
Not all, but most. Mortgage interest relief is limited to 20%, meaning that higher and additional-rate tax paying landlords lose out on tax relief.  In addition, some basic-rate taxpayers are pushed into higher tax brackets without earning any extra income.

Are there any other impacts?
Yes, some landlords are seeing themselves caught by the High Income Child Benefit Charge or the restricted personal allowance rules, because the changes effectively increase their taxable income.

But landlords have known about these changes for years, haven’t they?
Yes, most landlords have known about these changes for quite some time now. Though, the full financial impact of the changes may not hit home until they lodge their 2017/18 self-assessment tax return.

So, what are landlords doing to mitigate the impact of these changes?
Many landlords are hiking rents for tenants. For those landlords luckily enough to own unencumbered properties, increasing their rents in line with their encumbered colleagues means actually making more profit!

What else are landlords doing?
Some landlords are restructuring their property portfolios or are choosing to exit the market altogether to avoid facing the increased costs incurred.

It is reported that one in five landlords have moved their property into a limited company or transferred ownership to a spouse. Research also shows, that on top of the fifth who have already transferred property ownership, a further one in six landlords plan to make a similar move in the future.

However, there are differing attitudes over the benefits of such a move. More than half of smaller landlords say changing ownership is not worthwhile, while just a quarter of larger professional landlords say the same.

Are there more changes coming?
Further penalties will hit landlords in April 2019 when changes will be introduced meaning that Capital Gains Tax on residential property will have to be paid to HMRC within 30 days of disposal rather than the current 12-month period.

So, what should I do if I am a private landlord?
Because of all the new legislation and confusion surrounding this area, there’s no single course of action that fits every landlord’s situation.

In order to maximise profits, it’s more important than ever to seek advice from a Chartered Accountant & Business Adviser who has proven expertise in this field. They will be able to analyse all your options and work with you to find the best possible solutions to meet your needs.

Another huge benefit of utilising the services of a Chartered Accountant & Business Adviser, is that where required, they are able to find the appropriate finance to fund your investment properties, via the connections they have with the specialist lenders in this complex area.

For further information or advice contact or call Mitchells  on 01246 274 121