Changes to the tax treatment of mortgage interest were announced in the 2015 Budget, and, as we now approach the end of the tax year, further changes are looming.
Adrian Moloney, the Sales and Marketing Director at OneSavings Bank, has said: “Landlords have had nearly three years to understand and prepare for the changes to the tax treatment of mortgage interest.”
Specialist lender, Kent Reliance, part of OneSavings Bank, is warning that failure to prepare for these changes will cause a serious headache.
These changes include reductions to tax relief, the first of which came into effect in April 2017. This means that only 75% of finance costs could be claimed back by landlords when they file their returns ahead of January 2019. By April 2020, they will also no longer be able to deduct any of their mortgage expenses from there rental income when calculating their tax obligations.
Results provided by market research consultancy BDRC Continental has suggested that one in five landlords (19%) have already moved properties into a limited company, or transferred ownership to a spouse, in order to lessen tax bills. A further one in six (13%) apparently plan on doing so in the future. This research goes on to uncover that 15% of landlords don’t fully understand the implications of such actions. It won’t be until they go to file their taxes for the year 2017/18 that these implications will become clear.
Kent Reliance has seen an increase in borrowing for limited company lending in 2017. According to their data, during the first three quarters of 2017, seven in ten buy-to-let applications for house purchases were through a limited company, up from 45% in 2016. The results of a survey asking landlords about their buying plans show this trend to be well supported, seeing 41% respond that they expect to purchase within a limited company. In comparison, only 24% responded that they expect to buy as an individual.
Moloney advises: “As the tax year draws to a close, brokers can use this opportunity to engage with their clients, making sure they’re aware of the potential impact of their finances.”
He stated that it is not a “one-size-fits-all” solution; therefore, seeking advice before making a decision could save you time, effort and money by ensuring you go down the relevant route.