Upad survey shows most landlords are mystified by buy-to-let tax changes

Last week, the changes to mortgage interest rate relief announced last year were finally introduced. However, many landlords still don’t understand what this will mean for them.

1 in 5 landlords unaware of new tax rules

A new survey by online letting agent upad.co.uk has found that 20 per cent of its landlords are unaware, or only vaguely aware, of the buy-to-let changes and are now unsure how much tax they will have to pay on their properties.

This may well land them in hot water, as fines of up to £30,000 for a range of housing offences were introduced on the same day. Alongside the tax changes, local authorities now have the power to crack down on ‘rogue landlords’.

Nearly half of landlords polled unsure how much they’ll be paying

47 per cent of respondents to Upad’s poll didn’t know how much tax they would have to pay by 2020 when the mortgage interest rate relief changes come into full force.

The changes are being phased in across the next three years, meaning landlords will have to keep their eye on the calendar to make sure they’re paying the right amount of tax at the right time.

From last week landlords can only offset 75 per cent of their mortgage interest against their profits. Next year this will fall to 50 per cent, then 25 per cent in 2019. In 2020 it will fall to zero and will be replaced by a 20 per cent tax credit.

Limited companies the way forward, suggests Upad’s CEO

James Davis, CEO and founder of Upad.co.uk, suggests landlords set up a limited company. (Incidentally, the surge in limited company landlords was one of our top six buy-to-let predictions for 2017)

Davis said: “If you’re a higher rate or additional rate tax payer, or these changes risk tipping you into the higher tax bracket, and you own the property with a lower rate tax payer, you can transfer more of the rent to them to limit your overall tax bill.”

Another option, Davis says, could be to switch to fully furnished holiday lettings. These are exempt from the tax changes so you can still claim full mortgage interest tax relief.

How will the tax changes impact you? Let us know in the comments.

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