Tax Update for Landlords

"Landlords are about to be affected by the first phase of the restriction in tax relief for mortgage interest to be introduced in April 2017 which will be fully implemented by 2020."

"Some are looking at holding their properties in limited companies to avoid the restriction but this strategy has other implications to be considered such as stamp duty land tax, capital gains tax and the tax on extracting property rental profits from companies by way of dividends which are now subject to the dividend tax introduced in April 2016.

This is also an area which may attract the attention of the Chancellor in the future if he perceives that holding let properties in a company results in an unfair tax advantage in comparison with landlords who hold the properties personally.

Transferring the mortgage debt to a company may not be without its problems in that certain lenders are requiring that landlords obtain market rent valuations at the date of the next rent review and that the maximum achievable increases in rents resulting from those valuations are demanded from tenants. This is in response to tighter Bank of England rules requiring lenders to apply new affordability tests. At the very least there will be charges by the lender and legal fees in connection with any transfer.

One thing is certain, the tax landscape is changing rapidly in response to the need by Government to raise funds and it is unlikely that the rental sector will be immune from further changes in the future."