As we have reported before, many private individuals have bought property over the last ten years to rent out with a view to using the income as a form of pension once the mortgage is paid off. This has led to an explosion in private landlords many of whom have one or two properties.
The so called 'buy to let market' is an important source of business for mortgage lenders and represents a significant proportion of the UK mortgage market.
The Chancellor, George Osborne has already caused a stir in the buy to let market by providing in the July 2015 budget big mortgage interest relief changes. Landlords can currently deduct mortgage interest from their rental income before calculating how much tax they should pay. Over three years from 2017, however, Mr Osborne plans to sweep away these reliefs, restricting them to the basic 20% rate of income tax for all landlords.
In the November 2015 Autumn Statement, the Chancellor continued the focus on the buy to let market by providing that from April 2016 Stamp Duty Land Tax (SDLT) will increase for residential properties worth over £40,000 which are bought as second homes or buy to let properties. Buyers of such properties will pay an extra 3% SDLT above the rates they would have paid under the existing rules. This represents a significant extra cost at the point of purchase.
So whether you are thinking of purchasing a buy to let property in the coming months or are unsure as to the impact of the mortgage interest relief changes, you should obtain detailed advice to ensure that you do not have a nasty surprise in relation to the amount of tax that you will have to pay.
It is important to remember that there is a lead in time for any property purchase, so do not leave it until the end of March 2016 to try to purchase your next buy to let property or you could pay the higher SDLT rate.
To discuss this or any other aspect of property purchases, contact us.