Property Expert Mark Homer Responds To Budget 2015 Announcement

“Buy To Let Tax changes

Following yesterdays budget announcement we have had some time to digest the detail on the reduction in mortgage interest relief. It does look as though this will affect many landlords from April 2017.

Effectively it looks as though 40%/45% taxpayers will only get around half of their mortgage interest (and arrangement fees) offset against their rental income. 20% taxpayers shouldn’t see much change.

The effect of this will be staged meaning that 25% of this extra tax will be payable on profits made in the Apl17-Apl18 tax year, 50% in Apl18-Apl19, 75% in Apl19-Apl20 and 100% in Apl20-Apl21 meaning that the full effect of this wont be felt until your January 2022 personal tax bill is due.

It is still early days and we need to see how HMRC will implement some of these changes (ie they may find ways of stopping elements of this working) but I have formed some initial thoughts on how we could tackle this change:

1) This change only seems to affect individuals and partnerships/LLPs. Ltd companies seem to be excluded. Landlords could potentially look to purchase their future properties into Ltd companies (I expect if this works Buy To Let lenders will become more open to this-otherwise commercial lenders will already facilitate this).

2) For those who already own properties personally or in a partnership/LLP they may want to transfer them to a Ltd company (they will be subject to capital gains tax and stamp duty). An easier way to do this if you want to keep your current mortgage would be by using a deed of trust, which would transfer the beneficial ownership to a Ltd company. A good solicitor can draw one of these up for you.

3) Savvy landlords will look to purchase more properties that need refurbs. As long as the property is in a lettable condition when you buy it (but still needs redecoration) and comes into the lettings market before the refurb is done most repairs/replacements such as kitchens, bathrooms, paint etc can be offset against all property income from your whole portfolio. This means that a £7000 refurbishment could potentially come off all of your other rental income profits. Solution: Buy a few properties that need refurb every year!

As more information is released I will find more ways to help everybody with this change, to be honest it surprised me that they actually did it and I suspect there will be quite a few unintended consequences which may mean they have to tweak/change it again anyway.

Mark Homer
Invest For Freedom, Choice and Profit