mortgage tax relief for central housing group

Rental sector unprepared for mortgage tax relief changes

A leading accounting and advisory service says key mortgage tax relief changes could damage the buy to let sector are still not being adequately prepared for.

Bishop Fleming’s head of tax, Andrew Browne, says that the gradual phasing out of mortgage tax relief, introduced in April 2017, is causing the greatest fear amongst the buy to let sector, as it results in affected landlords who take no action renting at a loss and being forced out of the market.

By 2020, mortgage interest relief on residential lets will be capped at just 20 per cent and the cap pushes basic rate taxpayers into higher taxes and leaves higher-rate taxpayers with substantially larger tax bills, as more rental income is exposed to income tax.

However, Browne warns that buy to let investors migrating to companies rather than remaining as individual landlords does carry risk.

“I would caution against transferring personally owned properties into a company to save tax without thinking through the consequences, as it is not always the most sensible move, and may prove to be an expensive mistake in terms of capital gains tax, stamp duty and inheritance tax, as well as the extra re-mortgaging costs” he says.

“Even where properties are transferred, tax will only be saved where the money is left in the company, as taking it out will result in the payment of dividends tax” he adds.

Browne suggests a number of alternative options for affected landlords looking to avert a tax crisis including rental increases, disposals of low yielding properties, putting new properties in a company whilst keeping the rest personally, reducing borrowings, and bringing family members into the business.

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