A survey carried out by the UK-based bank, Paragon, has revealed that 58% of landlords saw their tax bill increase in 2017/18.

With an average annual increase of £3,039, a third of landlords surveyed said the tax they owed was either a little or a lot more than they expected. Nearly half (49%) of landlords who reported a higher than expected increase said they would have to make changes to their portfolio as a result.

The most popular measures include selling property (24%), increasing rent (20%) and reducing borrowing (19%).

These findings leave no doubt that the effects of changes to mortgage interest relief are already being felt just one year after being introduced.

Mortgage interest tax relief is being phased out over a four-year period and will be replaced with a basic-rate tax credit by April 2020.

Speaking about the findings, John Heron, director of mortgages at Paragon, commented:

“The January tax [returns] deadline was the first real data point for measuring change and it’s clear that landlords are continuing to adapt their approach as the transition progresses.”

One way that buy-to-let landlords are adapting is to change their business structure, with research from Precise Mortgages showing an increasing amount of landlords are moving to limited company status.

Almost two-thirds (64%) of landlords with more than four residential properties and plans to buy more in 2019/20 will do so as a limited company, compared to 21% who will buy as individuals.

Switching to limited company status enables landlords to continue to offset their mortgage interest against their profits.  

Alan Cleary, managing director of Precise Mortgages, spoke about the changes occurring in the industry:

“The buy-to-let market is changing and the switch to greater use of limited company status is one aspect of the development underlining the increasing maturity of the sector. There are good reasons why limited company buy-to-let is dominating the purchase market and we expect that will continue to be the case this year and next.”

He continued:

“Customers, however, need expert specialist support when buying as a limited company or considering switching to limited company status as there are considerable costs involved.”

Talk to Peter

If you’re a landlord and would like to discuss the changes to mortgage interest relief or how to manage your portfolio, please get in touch with our tax, payroll and accounts manager, Peter Bowyer.

Alternatively, to familiarise yourself with all the latest tax rates, allowances and thresholds, download our free tax card.

Peter Bowyer

Peter Bowyer

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