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As a nation we have become obsessed with investing in buy to let residential properties. It seems we all have a budding landlord within us bursting to get out. However, all this is likely to change following a two pronged attack from Mr Osborne.
His first line of attack came in the Budget earlier this year when he announced changes that will see the phasing in of a restriction on mortgage interest relief for buy to let landlords on their residential property portfolios. The phasing will begin from April 2017 and run for three years after which only basic rate tax relief will be available. The impact of this for landlords paying higher rate tax is likely to be significant and some may find themselves effectively paying tax on income from property on which they have made a loss on after paying mortgage interest.
Now, following Wednesday’s Autumn Statement, we have a further blow for Landlords. Higher rates of SDLT will be charged on purchases of additional residential properties (above £40,000), such as buy to let properties and second homes, from 1 April 2016. The higher rates will be 3% above the current SDLT rates. The government will also consult in 2016 on changes to the SDLT filing and payment process, including a reduction in the filing and payment window from 30 days to 14 days, coming into effect in 2017 to 2018.
There was another announcement made in the Statement that also potentially impacts Landlords selling properties. Often when advising clients on the timing of a sale of an asset that will be subject to capital gains tax, we would suggest that the sale is made shortly after the 5 April. The reason for doing so is one of cashflow. If a client were to sell a property on 5 April 2016, he would have to pay his CGT to HMRC by 31 January 2017. However, if he were to sell on 6 April, he would not have to pay until 31 January 2018. He therefore gets the cash flow benefit of holding on to the tax for an extra 12 months. Not for much longer. From April 2019 landlords will be required to make a payment on account of the tax due within 30 days of completion of the sale.
Clearly it is time for buy to let landlords to take stock of their position.
However, all is not lost and there are ways of restructuring portfolios to address some of these changes. Please contact Enterprise Tax Centre if you or your clients have been affected by these changes.