First off, it is worth looking at some of the main changes taking place effecting Landlords…
Tax Relief: From April 2017, increasing restrictions on the amount of tax relief claimable against mortgage costs will be phased in over 4 years, ultimately limiting relief at the basic rate of tax (currently 20%) from April 2020 onwards. Higher & Additional Rate taxpayers will see a significant rise in their tax liability, and hence a reduction in their net rental income after tax – in some cases leading to net annual losses instead.
Wear & Tear: Until recently, Landlords could claim tax relief on 10% of their rental profits as ‘general wear & tear’, regardless of the actual expenditure in this area. From April 2016, this allowance was abolished, and replaced with “Replacement of Domestic Items Relief”- where evidence now needs to be provided of any replacement costs incurred, in order to claim relief.
Stamp Duty: Also since April 2016, an additional 3% was added to the usual SDLT rates for the purchase of additional residential properties (including second homes and buy-to-lets).
Mortgages: New rules for Mortgage affordability testing, plus Interest Rate Affordability Stress Testing for BTL mortgages became mandatory from January 2017.
Letting Fees: Plans announced in the 2016 Autumn Budget Statement mean that Letting Agents will be banned from charging fees to tenants. Exact rules have yet to be finalised, but this change is likely to result in higher costs to Landlords and in turn, to their tenants.
Explaining the Need
With all the above new and incoming changes to BTL-related reliefs and allowances directly impacting every Landlord, there is now a clear need for all Landlords to take upfront Professional Tax Advice, in advance of any BTL finance applications going forwards, or in respect of existing portfolios.
Pro-active Lenders have been educating Financial Intermediaries well as to the various changes, and as to the product solutions they can now offer to help meet different client’s needs, but there remains the need for Landlords themselves, and for Intermediaries with Landlord clients, to ensure the most tax efficient structure is decided upon for ownership of BTL properties.
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Existing and new Landlords should now be determining the most efficient structure under which to proceed with their BTL properties, whether as Limited Company, Individual or Partnership – and each Landlord needs to be individually assessed in this regard, according to their personal circumstances. There are no simple “rules of thumb” in this area, so expert professional advice should be sought.
There are number of clear tax advantages to the use of a Limited Company structure for BTLs, but it will not be right for everyone. Planned usage of rental income profit, intentions for the property over time, before & after tax rate position/s, broader implications of company ownership, and a host of other crucial factors, will all impact on how any particular Landlord should best proceed.
For Financial Intermediaries acting for Landlords, who are not also qualified accountants or tax specialists, care needs to be taken when discussing the available tax structures, as there is a danger of inadvertently misleading the client – and the possibility of redress if it were ever determined that inappropriate tax advice was provided. In addition, the growing majority of Accountants have shifted in recent years, more towards ‘compliance’ accounting, rather than ‘advisory’ services – so actual tax advice is proving harder than ever for Landlords to find.
With all the above in mind, LSS’s Tax Structure Advice service has been created to offer Landlords, and their Financial Intermediaries, the ability to proceed safely and confidently – via a swift process provided by a leading UK firm of Chartered Accountants – designed to give the required, bespoke, independent and written advice that every Landlord now needs, both quickly & cost-effectively.