We have all seen the press releases now from the summer budget and have an idea on who it affects.
The one change which has seemingly only been talked about amongst landlords, lenders and accountants is the reduction of tax relief on mortgage interest for landlords if you are a higher rate taxpayer.
When interest rates were cut and the banks started paying very little interest to savers, many people invested in property for their pension pot. With further restrictions on pension contributions it seems an odd move to bring in this law. Whilst the government wants to try and encourage people to buy homes, let’s not forget that 10 per cent of new build properties are by landlords.
With some lenders asking for 25 per cent deposits it has become increasingly difficult to find vast sums of money to put down on a property. With fewer landlords, the rental market will be restricted, which could see a rent hike.
Despite the new rules being phased in from 2017, landlords should start thinking about how to mitigate their tax bill or cash flow (I have one client with a large portfolio with a £15,000pa tax increase). Here are some ideas:
1. Try and use your spouse’s annual allowances or basic rate band (subject to earnings)
2. Become a property invest company and utilise a £5,000 dividend exemption on drawings
3. Sell certain properties and reduce borrowings
4. Raise rent
5. Remortgage portfolio for different terms and rates
If you want to know more about the above or any other area of tax, please call 01633 213318, Senior Tax Manager, Elliott Buss
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