We're now a month or so into the new tax year and we thought a quick update on the latest tax rules affecting landlords might be handy. We also ask the question, following the big news today about the exit of Theresa May, of whether there could be a chance things may change.
The 2019/20 tax year is currently set to see even more changes and by 2020 you won't be able to deduct any of your mortgage interest payments from your rental income before paying tax.
We have spoken to Paul Tait, Director of Portico Finance and got his thoughts on the upcoming changes, options available and what landlords can do to prepare for them.
No more tax relief
Up until April 2017 landlords were able to offset interest paid on their mortgage from rental income, bringing down their overall tax bill.
From April 2020 you will no longer be able to deduct any of this, instead the government has introduced a 20% tax relief to your mortgage.
If you're a basic-rate tax payer then you are likely to be in the same position. But if you tip the top tax bracket then you could end up paying significantly more.
However you will be seeing a change to tax free personal allowance, with it increasing from £11,850 to £12,500 so you'll be keeping slightly more of your profits. As a result of this the tax brackets will be changing as well, so that you can earn £50,000 before tipping into the 40% tax bracket.
Stamp Duty Changes
An extra 3% has been added for stamp duty for anyone buying their second home on property prices up to £125,000, with this increasing to a total of 15% for properties over £1.5m. However, if you were to transfer your current property into a buy-to-let Special Purpose Vehicle (SPV) on completion you would technically only own 1 property therefore, would pay the standard rates of stamp duty and not the extra 3% on your next and typically more expensive property.
You would still however pay 3% on the previous home that you’ve now turned into a buy-to-let and into a SPV, but there are lenders who will let you borrow within the mortgage to pay the stamp duty bill in total (providing you have the equity available to do it and you meet their general terms) so that way you don’t have to find the extra lump sum upfront.
Paul Tait, Portico Finance Director comments on the stamp duty changes:
"With the significant stamp duty changes, Mortgage tax relief reduction and the significant tightening of mortgage underwriting standards for Buy to let there has never been a more important time to seek correct advice from a Mortgage Broker"
Below's graph demonstrates the stamp duty changes:
What's out there for you
As the buy-to-let market changes so do the available mortgages deals. It is important for landlords to research the market and see what is currently available when it comes to finding the right mortgage to suit your needs. The brokers at Portico Finance have not only the access to the best deals but also the all important contacts and relationships at the lenders, so even if your situation isn’t vanilla; they will be able to find a lender who can consider your application. The Portico Finance team have summed up a few examples of what could currently be available, however, each situation is different per client.
Mortgage to Buy a Property
Assuming a purchase price is £500,000 with a £375,000 mortgage
The lowest rates could start from 1.69% at a best buy of 75% loan to value (LTV) on a 2 year fixed rate. It is important to take a clear look at your options when considering your options as there could be lower rates but these come with higher arrangement fees that can increase your total cost over the two years.
Looking to Remortgage
Again looking at the property value being £500,000 with a £300,000 mortgage
So for a 60% LTV you can get rates starting from as low as 1.47% loan to value on a 2 year fixed rate.
Changes to government
After the announcement earlier today the aforementioned could all be set to change, as we speculate who may be the new leader. The likes of Boris Johnson, rumoured Conservative Party leadership candidate, has previously called for the abolition of stamp duty, which he labelled "absurdly high" and has claimed the housing market is the “the single biggest and most urgent crisis we face”. We will certainly see a change of leadership but it is far less likely that some of the newly implemented tax changes for landlords will change though in the short term.
Contact a broker
The buy-to-let market is rapidly changing and as are the mortgage deals on offer. To understand what is out there and could be available to you, speak to Portico Finance who are able to lend advice on your best options.
We recommend you take legal and tax advice before making any financial decisions. If you’re interested in any of these mortgage rates, or speaking to an expert mortgage broker, give Portico Finance
a call today on 0207 731 9680. Portico Finance has over 50 available lenders, so there is bound to be one that suits yours and your portfolio's needs. !!!!!!!!!!!!!!!!!