How will the restrictions on buy-to-let mortgage interest relief affect me?

Restrictions on buy-to-let mortgage interest relief

This article first appeared in the Winter 2017 edition of our Cwtch Magazine. Please click on the thumbnail above to read it as it appeared in the magazine.

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If you’re a higher rate tax payer (so with an annual income in excess of £45,000), then from April 2020 you will only get tax relief at 20% on buy-to-let mortgage interest payments. This means your tax bill will increase by 8% of the amount of interest paid.

What about transferring my property to a limited company?

The changes to mortgage interest relief mean that many landlords are now making new residential property investments via limited companies.

Kelvin says: Landlords could also benefit from an uplift in the tax base cost of property transferred to a company in exchange for shares, meaning a reduction in tax costs on sale.

Rental profits would be taxed at the lower corporate rates and there’s no restriction on loan interest deductions. 

Landlords could also benefit from an uplift in the tax base cost of property transferred to a company in exchange for shares, meaning a reduction in tax costs on sale. 

The SDLT (Stamp Duty Land Tax) position would need careful thought, although reliefs may be available for transfers of property held in partnership, or transfers of  multiple properties. 

What about inheritance tax? 

40% of your wealth could disappear to the tax man on death - but there are ways to avoid this by acting in your lifetime. You could set up a trust fund or gift property to your children - but you need to be careful not to trigger a tax charge at the time. 

There are also opportunities to decrease exposure to IHT (Inheritance Tax) where your property portfolio is held in a company whereby different classes of shares could be issued.

Contact Kelvin on:

Carston Chartered Accountants
Tudor House, 16 Cathedral Road, Pontcanna, Cardiff, CF11 9LJ
Tel: 02920 233223

06 December 2017

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