Tax Changes – What Landlords Need to Know

Tax Changes – What Landlords Need to Know

Tax Changes – What Property Investors Need to Know

I am surprised by the number of property investors who are not aware of the recent tax changes and how it affects them.  In fact, 1.4 million investors will be affected as of March 2017 according to  The legislation is commonly called Section 24.

As of April 2017, HMRC are removing the mortgage interest relief rate by 25% each year over the next 4 years.  This is a unique case targeting landlords.  Every other business is able to offset costs against revenue.

This will affect all landlords, but impact only people in the 40% tax bracket.  If you are in a 40% tax bracket with finance leveraged low yielding property it can turn a portfolio that was making a profit into one which is making a loss.

How Much Could you Lose Due to Landlord Tax Changes?

Example of the old scheme:

Monthly Rent  £1000 pcm
Mortage Interest  £800 pcm
Profit  £200 pcm

Once the full impact of this change is felt, a 40% taxpayer will not be able to offset the full interest against the profit and would only get 20% relief on the £800.  The net impact on this is the tax increases by £200 a month meaning there is zero profit and you are working for HMRC.

Example of new scheme:

Monthly Rent  £1000pcm
Mortage Interest  £800pcm
Extra Tax  £200pcm
Profit  £0

How To Negate the Impact of Landlord Tax Changes

So what are Landlords doing about this?  Well for some landlords this is just too much and portfolios are being sold off.

A large number of Landlords are incorporating and setting up limited companies so they can offset 100% of the mortgage interest.  Unfortunately, this comes with higher costs too in terms of corporation tax and personal tax.

Lastly, landlords are looking further afield for higher yielding areas and different strategies.

Manchester has seen huge advances in property growth driven by investors as they know yields in the North are much higher than London and the South.  Multi Lets and HMOs have seen growth as investors pile in to buy property to convert.

Unfortunately, some of these investors are being exploited by unscrupulous property sources who are selling dream investment properties with poor refurbishment standards and the income is not materialising.

Whatever your chosen strategy get some expert advice

I have included a link to the RLA tax calculator.  If you have concerns seek expert financial advice.

If you would like to learn more about investment opportunities and making the most out of your portfolio – why not get in touch! I’m always happy to talk property.

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