New landlord taxes and how it can affect you

Buy-to-let landlords got shocked when it was announced that their tax relief for mortgage interest in buy-to-let properties are going to be slashed starting April this year.

On the current tax relief policy, landlords can claim their tax relief based on their rate of tax depending on their property’s mortgage interest payments. The basic taxpayer can get a 20% tax relief but those who are in a higher margin can claim as high as 40 to 45%. With the new tax relief policy, everyone will get a 20% flag down rate. Basic taxpayers won’t have any problem with this but those who are used to receiving more will definitely feel the loss over time.

For example, if a landlord has a £200,000 worth of property and his buy- to- let mortgage amounts to £150,000 together with £800 of monthly rent, the landlord will be able to get a £2,160 net profit for the whole year. However, since the new policy has fixed rate of 20%, the landlord will get £960 only.

Those who have long term- fixed rate mortgage will be the ones who will feel the changes the most as this kind has higher rates but the return of their investment might not be enough. Most landlords will initially make the rent higher but this set up may not work as most tenants barely have enough for their needs.

There are ways on how you can somehow soften the blow. First, you can opt for short- term fixed rate, though its risk is higher, you will be able to get lower rates for your interests. Another way is to include your real estate portfolio to a limited company organisation. You’ll be paying less as income tax is generally much higher but prepare yourself for fewer mortgage options as not all lenders prefer lending to a company.

The new tax relief policy is said to level out the discrepancy between the small scale landlords and the major players in the industry. If you’re a small scale buy- to- let landlord, then you don’t have to worry about the new policy as you won’t be affected that much. Lastly, this new policy may also help those who are planning to have their own buy- to- let property business as the competition decreases.

For the people who have investment property in South East London and its neighbouring areas, they can expect changes when it comes to their mortgage interest payments. As long as they’re running a small scale business, they won’t be obliged to do something and only the major players will have to do some remedies for their profit loss and for the competition.


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