Tax changes mean buy-to-let must be run as a business
Buy-to-let tax changes are set to come into effect later on this month.
In preparation, industry representatives have been discussing how landlords can best ride out the changes and maintain profitability. Here’s our take on proceedings:
What are the most recent buy-to-let tax changes?
Originally announced back in 2015, the changes will prevent landlords from deducting the whole cost of mortgage interest from rental income when calculating taxable profits.
April marks the first stage of implementation, which will continue until 2020 when higher rate tax payers will only be able to deduct 50% of their mortgage interest.
Long-term predicted effects of this change include:
- Tax rates exceeding 100% for some landlords
- Returns wiped out for higher-rate taxpayer landlords with mortgage interest that’s over 75% of rental income
- Returns wiped out for additional-rate taxpayer landlords with mortgage interest that’s over 68% of rental income
- Basic-rate taxpayers will move into a higher-rate tax bracket
How will this affect how landlords manage their portfolios?
Influential industry representatives discussed how landlords might ride out these changes at a recent Property Wire panel discussion. Their recommendations included:
- Treating it as a business
- Keeping on top of costs
- Concentrate on yields over capital growth
- Looking at cities outside London (including Manchester, Birmingham and Liverpool)
- Sticking with markets that are already known
- Adjusting insurance policies to reduce monthly payments
By using these tips to manage your portfolio more like a business, you can take steps to stay ahead of the latest buy-to-let tax changes.
Call on 3 Wise Bears for more expert buy-to-let accountancy advice.
