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The government seem intent on targeting the buy to let sector at the moment and this, together with the Brexit fears, has caused a great deal of uncertainty with investors.
The key changes are an increase in stamp duty for buy to let and second homes, and some changes with mortgage interest relief that is being phased in between 2017 and 2020.
I have seen very little effect from the stamp duty change that was introduced in April because clients are taking the view that property is a long term investment, and an extra 3% cost at the purchase stage makes very little difference. The mortgage interest relief change has has more of effect, particularly with the bigger landlords who rely on the income to live off.
There are three ways to reduce the impact of reduced interest relief:
1/ Purchase properties via a Ltd Company. This avoids the new rules and allows you to offset all the mortgage interest as before. There are downsides to this because the cost of credit is higher and accountancy fees can be higher too. Please seek the advise of a qualified accountant before investing via a company.
2/ If you are a couple you can purchase the property in the name of the lower earner of the household. If this keeps their total income (including rental income) below the higher rate threshold it will avoid the higher tax.
3/ Shop around to get the lowest mortgage rates available. Keeping your mortgage costs as low as possible will help compensate for the higher tax charges.
If you would like to discuss this further please give us a call on 01444 443439.
