Upcoming changes to the buy-to-let market

As a landlord, understanding the buy-to-let market and managing your mortgage effectively are key to the success of your property investment. Changes in the way Stamp Duty is calculated and the timing of Capital Gains payments are just a few of the new requirements that may alter the way you think about your investment strategy. So it is worth taking time now to understand what the financial implications could be for you in the future.

If you would like to view or print this information in a booklet format, please see here.

How the changes may affect the short term investment strategy

Reduced Income Tax relief on your mortgage interest

Currently landlords are able to offset the full value of their mortgage interest payments against their rental income when they calculate their profits. However, from April 2017, this will begin to be phased out. By April 2020, the tax relief that can be claimed will be limited to the basic rate of income tax of 20%. The HMRC website has guidance and a range of scenarios to illustrate what this change could mean for you. A qualified accountant can help you see exactly how this change will affect you.

Wear & Tear allowance changes

Until now, landlords of fully furnished properties have been able to automatically deduct 10% of their rental income as notional wear and tear. The new changes mean they will only be able to claim tax relief on the costs they have actually incurred.

You can find more information on the allowance changes at gov.co.uk.

Welfare reform

The government has been steadily reducing welfare entitlement, including housing benefit and local housing allowance. A benefits cap has also been introduced, which can affect how much can be claimed, particularly in more expensive areas such as London and the South East. With reduced benefits available to tenants, rental affordability and therefore landlord incomes could well be affected.

How the changes may affect your long term investment strategy

Increased Stamp Duty on property purchases

Anyone buying a second or subsequent property will now need to pay an additional 3% in Stamp Duty regardless of the property value bands. As well as making it more expensive for you to buy additional property, it’s a change that could make other people, such as other landlords, think twice about doing the same.

Capital Gains Tax to be paid within 30 days of sale

Changes have been introduced to Capital Gains Tax.  The government’s stated aims are to make investment in Buy-to-Let less attractive, encourage investment in limited companies and reduce the size of the private rental market.

From 2019 you will no longer be able to defer payment of Capital Gains Tax and must pay this within 30 days of selling a property. This could potentially reduce the amount of cash available to you after you have sold a property and could therefore limit your options for re-investment.

Changes to lenders’ criteria

The Prudential Regulation Authority (PRA) has introduced more stringent affordability assessments, which will be standardised across the industry.

For more details on the tax changes visit the Gov.uk website

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