According to government estimates, an extra £665m will be raised from the restriction on tax relief, but accountancy firm Baker Tilly said as there is time before the rules are implemented, landlords do not need to act yet.
In the last Budget, he Chancellor slashed the tax relief that private landlords receive on their mortgage interest payments, cutting it from 40pc or 45pc to 20pc by April 2020.
However, the tax advisory firm has created a list of options for landlords that could be affected by the changes.
Gary Beynes, head of private clients at Baker Tilly, said while landlords’ options are limited they should consider the following:
– Whether it is now worthwhile reducing financing costs. For some it may have made sense to invest cash and borrow for property rental, but with the changes meaning an extra 20% or 25% (and in some cases 40%) tax on the amount of the finance costs, it may now be better to repay borrowing rather than keep cash invested.
– Ownership of the property. If held in a sole name, it may be better to transfer to a spouse or civil partner either entirely or partly. While this should be free of capital gains and inheritance tax, a Stamp Duty Land Tax liability could still arise. It may even be worth considering transferring in whole or in part to adult children – again, there may other taxes due in doing so, but the income tax and future inheritance tax savings may make it worthwhile.
– For some landlords it may be worth considering transferring their activities to a company. For landlords with many properties, they could qualify for incorporation relief which could significantly reduce any tax cost of transferring their property business. Companies only pay tax at 20% (and this rate should be reducing in the future), so the impact of finance cost restrictions will be greatly limited.
