Whist investing in property is an attractive proposition it is important potential landlords are aware of the cost implications from the initial costs of purchase to those on-going costs.
From 4th April 2017 tax relief on landlords’ mortgage costs will be restricted to the basic rate of income tax.
In addition to this during the next three years the proportion of borrowing costs which a landlord can offset against tax will be tapered down to zero.
Don’t forget since 1st April 2016 higher rates of stamp duty apply on the purchase of a second residential property, 3% on top of the usual rate of stamp duty. This can have a huge impact on the affordability of a second property in the first instance.
As if this wasn’t enough landlords are also affected by new rules restricting other deductible expenses that they incur from renting property. This includes limiting tax relief for wear and tear in fully furnished properties.
The government has published guidance to assist landlords with understanding the changes.
These changes coincide with a tightening of regulatory requirements on the buy-to-let sector. This means that, since the beginning of this year, lenders have had to adhere to the Prudential Regulation Authority’s (PRA) supervisory statement 13/16. This requires consideration of likely future interest rates over a five-year period and lenders have an obligation to stress test their lending against an expectation of an increase in buy-to-let mortgage rates of at least 2% and assume a minimum rate of 5.5%, even if the stress test of 2% comes in lower than that.
Special underwriting rules will apply to landlords with a portfolio of 4 or more managed properties. The PRA has indicated that lending to portfolio landlords is more complicated due to potential problems associated with higher debt totals, more complex cash flows, multiple tenancies and risks of property or geographical concentration.
You should talk to an accountant about the most tax efficient way of running your rental portfolio.
Call us now on 0800 088 6004 for a free initial discussion to see how we can help with your property portfolio needs.