Well the last few weeks has been rather hectic as Hampstead
landlords, some who use us to manage their properties and other landlords who
just read our Hampstead Property Blog, have been sending me emails or picking
the phone up to me about the new rules on buy-to-let taxation announced in last
year’s budget. George Osborne confirmed in the 2015
summer budget that the tax relief given
to landlords on mortgage interest payments, on their buy-to-let (BTL) properties,
would be reduced over the coming years for higher rate income tax payers. The
Chancellor said the tax relief that private buy to let landlords (who pay the
higher rate of income tax) would change in 2017 from the current 40%/45% and
would steadily reduce over the following four years to the existing 20% by
2020.
With 36.1% of residential property in the Westminster
Parliamentary Constituency of Hampstead and Kilburn being privately rented (as
there are 21,066 privately rented properties in the area), these changes are
potentially something that will not only affect most Hampstead landlords, but
also the tenants and the wider property market as a whole. The choice of rental
properties could drop, especially at the top end of the market which could push
up rents.
However, Hampstead
landlords could protect themselves by reassigning one or more rental
properties into a company structure (e.g., a Limited Company, Partnership or
Sole Trader) and by doing so, the total tax paid is greatly reduced, because a
company only pays tax on the profit. Nonetheless, before everyone goes off
setting up companies for their BTL portfolios, it must also be noted, if a sole
trader firm is started, stamp duty needs to be paid, yet if the owner is in
business with a partner, they could enjoy some stamp duty relief. The biggest tax variation is Capital Gains Tax
(CGT) where the tax bill will be much higher when you come to sell your
portfolio. In essence, by going into business with your BTL properties, you
will potentially have a modest stamp duty to pay when you start, but you will
have a lot less monthly tax to pay, irrespective of the interest rate, but the
CGT bill will be much higher when you come to sell ... as you can see, it is
not a ‘get out of jail card’. Now it must be remembered, I am not a tax
advisor, so you must take advice from a qualified person (more of that later).
Those planning to purchase a BTL property will have to
factor these new rules into their calculations, and this could affect the
offers they are willing to make. However, I am not that concerned, as the
scaremonger reports fail to see the fact that two out of three BTL properties
that have been bought since 2007 have been purchased without the support of BTL
mortgage. With those two thirds of landlords paying cash for the purchase of
their rental properties, that means two thirds of landlords will be totally
unaffected by the changes.
If the demand is there, I am happy
to organise an informal seminar with a local Hampstead accountant one evening, whereby
they can show you the options available and what might be best for you.
Therefore, if you are interested in attending, please drop me an email chris@ashmoreresidential.com and we will be able
to get something organised very soon.
If you are looking for an agent with experience that can help you find the right tenant for your property, then contact us to find out how we can get the best out of your investment property. Email me on chris@ashmoreresidential.com or give me a call on 020 7435 0420. Pop in for a chat – we are based on Ashmore Residential, Suite 7, 25-27 Heath Street, London, NW3 6TR. The kettle is always on.
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