Landlords – are you prepared for the reduction of tax relief on mortgage interest?

14 August 2015

We have all, by now, seen the press releases from the Summer Budget and have an idea of who is affected. However, one change which has raised attention amongst landlords, lenders and accountants is the reduction of tax relief on mortgage interest for landlords if you are a higher rate taxpayer.

When interest rates were cut and the banks started paying very little interest to savers, many people invested in property for their pension pot. With further restrictions on pension contributions it seems an odd move to bring in this law. Whilst the government wants to try and encourage people to buy homes, let’s not forget that 10% of new build properties are by landlords.

With some lenders asking for 25% deposits it has become increasingly difficult to find vast sums of money to put down on a property. With less landlords, the rental market will be restricted, which could see a rent hike.

Despite the new rules being phased in from 2017, landlords should start thinking about how to mitigate their tax bill or cash flow (I have one client with a large portfolio with a £15,000pa tax increase!).

So, here are some ideas:

  1. Try and use your spouse’s annual allowances or basic rate band (subject to earnings)
  1. Become a property invest company and utilise a £5,000 dividend exemption on drawings
  1. Sell certain properties and reduce borrowings
  1. Raise rent
  1. Remortgage portfolio for different terms and rates

For further information or to discuss your specific circumstances, please contact Elliott Buss or contact your usual UHY adviser at your nearest location.  Alternatively, you can complete our online contact form.