2016 has seen some of the biggest changes to the buy to let industry as the government attempt to make more properties available to first time buyers rather than landlords. Below is a list of these changes:
As of the 1st April 2016 the rate of stamp duty on second homes, and buy to let properties, increased by 3% on properties costing over £40,000. Please click stamp duty calculator and select additional property for the new costs.
Mortgage Interest Tax Relief
A very unpopular announcement was made that landlords will no longer be able to offset their all mortgage interest from rental income when they calculate the amount of tax that is due. They will only be able to claim tax relief up to the basic rate of 20%. This is being fazed in between 2017 and 2020 and will only affect high rate tax payers. Be careful though because if your rental income pushes you in to the high rate bracket you will end up paying more tax.
Whether you are looking to become a landlord, or you have a current property portfolio, is very important to seek advice from a tax specialist as soon as possible.
There are some ways to reduce the impact of this tax change and these include buying with a Ltd company. If you would like to discuss the options please give us a call.
Lender Stress Tests
From 1st January 2017 the Prudential Regulation Authority is introducing tougher stress tests on the affordability calculations the lenders use. They must use nominal rate of at least 5.5% and they must take in to account the potential tax increases that are being faxed in from next year. This has resulted in most lenders required a rental coverage of 145% rather than the usual 125%.
The effect of this will be the requirement of a much larger deposit when purchasing a buy to let property, particularly in London and the South East where house prices have increased significantly over the last few years.
If you would like to discuss these changes please give us a call on 01444 443439.