Buy-to-let: How to protect your investment in 2018

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In the latest UK200Group blog post, Toni Hunter, Partner at George Hay Chartered Accountants, looks at how you can protect your buy-to-let investment

Toni Hunter
Buy-to-let property was once seen as an asset that could be acquired relatively easily, without needing to jump through too many hoops. Those acquiring property and building a portfolio could look forward to capital growth and a good monthly income. Now, however, the buy-to-let market is a very different landscape. Nevertheless, it is still a market that has a lot to offer if you know how to protect your investment. So, what’s changed?

Mortgage tax relief
Previously, landlords could deduct mortgage interest and other allowable costs from their rental income, before calculating their tax liability. New measures though, first announced in 2015, mean the phased reduction of tax relief on buy-to-let mortgage interest is now underway. The measures will ultimately restrict relief for finance costs on residential properties to the basic rate of Income Tax.

• Tax year 2017/18: landlords can claim tax relief on 75% of their mortgage interest, with the remaining 25% available as a basic rate tax reduction.
• Tax year 2018/19: landlords can claim tax relief on 50% of their mortgage interest, with the remaining 50% available as a basic rate tax reduction.
• Tax year 2019/20: landlords can claim tax relief on 25% of their mortgage interest, with the remaining 75% available as a basic rate tax reduction.
• Tax year 2020/21: all financing costs, incurred by a landlord, will be given as a basic rate tax reduction.

You can protect your investment by…
…maintaining a clear overview of your finances. A sound understanding of your financial circumstances should enable you to accommodate change better. There are routes to cutting interest costs that landlords can take; re-mortgaging or obtaining a new valuation on rental property, for example. You may be able to limit the impact any changes have on your portfolio by securing the best deals and rates early on and adapting the structure of your investment business accordingly.

Being in regular contact with your letting agent, mortgage adviser and accountant is essential to keeping informed.

Stamp Duty Land Tax (SDLT)
In April 2016, the government introduced a controversial 3% stamp duty surcharge for buy-to-let investors and those purchasing second homes, where the property value exceeded £125,000.

You can protect your investment by…
…seeking professional advice so that you can make informed decisions about the future of your investment portfolio, considering the additional tax. Unfortunately, there is really no way of avoiding the surcharge and you will be liable to pay it regardless of your portfolio structure. You may have considered whether it is more beneficial to operate as a company, but this will not exempt you from paying SDLT.

Portfolios and PRA rules
New regulations were introduced in September 2017, aimed at landlords owning more than four buy-to-let properties. The new rules mean that, upon application for a buy-to-let mortgage, lenders will now have to take into consideration a landlord’s entire portfolio to determine which deals they are eligible for.

You can protect your investment by…
… knowing your property portfolio inside out, including which properties deliver good income and which don’t perform so well. It is essential that you also have your paperwork in check so that it can be used as a point of reference, or otherwise evidence of suitability for a specific deal.

Capital Gains Tax (CGT)
Have the changes left you thinking about fleeing the market, or downsizing your portfolio? Bear in mind that downsizing may not be as simple as you anticipate and that slimming down your portfolio could leave you facing large Capital Gains Tax (CGT) liabilities.

You can protect your investment by…
…making sure you are prepared. Calculate how much CGT you'll need to pay, before exiting your investment, so that this doesn’t come as a shock to you later. Remember though, that CGT is payable on the difference between the purchase price and the sale price. It may also be worth considering when is the right time to dispose of any property, to ensure that you make the most of your annual CGT allowance.

We have years of experience working with landlords, property developers and investors. We can help you to understand your current tax liabilities and prepare for any changes to property tax that might be on the horizon; identifying risks and opportunities and ensuring that your business continues to operate in a cost-effective, tax-efficient and compliant manner. If you’d like to discuss your circumstances further call us today on 01480 426500 or to find out more visit

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