Higher Taxes From 1 April

Higher Taxes From 1 April

Tax changes on 1 April 2017

Tax changes Imminent!

Higher Taxes From 1 April

This April sees the start of a new tax burden for landlords because the Government are capping the tax relief available on mortgage interest payments.  Roughly 49% of landlords who own their property outright will remain unaffected by the regulations, but the 51% who have a loan or a mortgage are likely to be adversely affected. 

Some of our landlords are already preparing for the changes, by placing their properties into Companies which will still be able to recover the payments made on mortgage interest.  There are some hurdles to overcome to achieve this though - first, the mortgage provider would need to be content with the transfer of the property to and secondly, the transfer itself may leave the landlord liable to capital gains already made on the property. The third issue is that the Company Mortgage market is still fairly immature and there are few products available - but this situation is developing fast.  

The full force of the tax changes, which were introduced by George Osborne, are being introduced over the next 4 years and will certainly affect higher rate tax-payers. 

Many landlords are starting to factor in the Capital Growth expected over the next 4 years as an incentive to remain in the Rental market and seem content to subsidise their rental portfolios for a time.  Others are looking at the options of ‘incorporation’ to benefit from a better tax environment and a more flexible way of owning property and transferring the benefits to shareholders.  Companies will benefit from tax at the lower rate of 19% from the 1st April and this could result in some significant savings. 

Mortgage Relief is being introduced on the following basis: 

2017 - 2018  75% Allowed as a tax deduction

2018 - 2019  50%  Allowed as a tax deduction 

2019 - 2020  25 % Allowed as a tax deduction 

2020 - 2021    0 % Allowable 

Property economists are generally forecasting significant increase in rent as landlords seek to recover their costs - not only from the increase tax burden, but also  from the costs associated with a significant increase in regulation. 

The changes in mortgage relief arrive together with significant increases in the regulation and administrative burden of landlords.  Graham Jolliffe, Director of Maher Ross said  

It’s a tough environment for landlords - particularly those that still manage their own properties.  We’ve seen an enormous growth in demand for our Portfolio Management Service from landlords (even some of our most experienced landlords) that want to keep a number of long-term property investments but just can’t deal with the regulation, administration and effort that is now required”.

General opinion in the rental community is that rents are likely to rise significantly and there will be fewer rental properties available.  Those rental properties that do come onto the market are being snapped up; the end result being higher rents for tenants and less properties available - perhaps the Government should think again?

HMRC has made Tax Tutorials available for landlords who need help calculating the tax owed on their rental income.  The computer based tutorials are designed to help landlords understand when and how to pay tax on property they have let.  for more infomation CLICK HERE

*** Maher Ross are unable to advise on individual tax arrangements; instead, we like to stick to what we're good at!  We recommend that our landlords arrange for a friendly chat with their accountant to discuss the changes - there is still plenty of time to adjust your approach!