The recent research conducted by the Foundation Home Loans, revealed that for a landlord to keep abreast and compliant with all the new legislation would be a full-time job, however 79% of landlord have another full-time job. Therefore, these people need to appoint a professional financial advisor and property professional to ensure their properties and tax affairs are in order.
Many landlords are now employing the assistance of a financial advisor to assist them in navigating the maze of new regulations. According to the research, 23% of the landlords, who are using financial advisors, have found their services invaluable in avoiding penalties and re-aligning their assets.
A major issue which nearly all landlords are grappling with is the reduction in tax relief. Many landlords are now moving their properties into a limited company structure. According to Foundation Home Loans research, more than 40% of the buy-to-let mortgage applications are using this structure.
The new tax rules were first introduced in 2015, being rolled out incrementally until 2020. Prior to these changes landlords could claim tax relief on their mortgage interest repayments at their prevailing tax rate. But from 2020 they will only be able to claim at the basic rate of 20%, which will cost some landlords thousands.
At the same time, the corporate tax rate will be reduced from 19% at present, to 17% in 2020. Therefore, many landlords will save money by moving their properties to a limited companies and benefit from this saving, as well as saving tax on any profits.
However, this will not suit all landlords; recent research suggests it is only worthwhile if you are buying more than four buy-to-let properties. Landlords will also find that mortgage rates are often slightly higher for limited companies and the tax implications are complex. Therefore, advice should be sough on an individual basis. Shaun Church, director of Private Finance, said: “The option to invest through a limited company has come under the spotlight recently as landlords look for ways to offset recent tax changes…. Larger landlords might find the tax benefits associated with limited company ownership outweigh the higher cost of mortgage borrowing, but each investor is different and there’s no one-size-fits-all solution.”