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Landlords aware of tax changes, but unsure how to deal with them

  • 08/03/2017
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Landlords aware of tax changes, but unsure how to deal with them
Brokers have warned that while many landlords know that they face changes to their tax reliefs, some are still unsure of exactly what it means for them or how they should react.

The Council of Mortgage Lenders has carried out a poll with YouGov, looking at the level of awareness among landlords of the coming tax changes to mortgage interest tax relief.

Interestingly, around two-thirds of landlords were aware that their ability to deduct mortgage interest would gradually be phased down, though this jumped to 80% of landlords earning more than £100,000 per year.

However, around 30% of landlords said they did not believe the changes would affect them.

How does this marry up with the experience of mortgage brokers?

The times they are a changin’… I think?

James Mole, head of finance and mortgages at Nova Financial, said that while most landlords were aware of the changes, almost none of them fully understood them, pointing out that most believe that they are guaranteed to be worse off. However, that often isn’t actually the case.

He continued: “The tax changes really showed us that a lot of accountants are not property minded and many didn’t fully understand the changes for a surprisingly long period of time. When your accountant can’t work out your tax position, it really is no surprise everyday landlords struggle with it also.

“Brokers need to understand this, but must remember to not give any advice on the matter and always refer clients to a knowledgeable accountant.”

David Sheppard, managing director of Perception Finance, added that the clients he had spoken to were all aware of the changes, and suggested that their accountants may have taken an active role in bringing them up to speed.

How landlords are reacting

A survey by the Residential Landlords Association last year found that one in four landlords were planning to sell properties as a result of the changes. However, the CML poll found them to be rather more positive.

It found that landlords were most likely to raise rents in order to cope with the higher tax bills. Almost one in five (19%) said they would definitely do this, and 5% said they had already done so. Just one in ten said they would be looking to leave the market.

Nova Financial’s Mole said that his firm had seen a lot more enquiries about purchasing properties in a limited company, and added: “Equally some of our longer term clients initially took a more cautious approach with further expansion plans, but that is starting to lessen now as people begin to get their heads around the changes.”

Perception Finance’s Sheppard said that most of his clients are looking to keep their investment properties, but pointed out that even if they can increase the rent, it may not make securing a future mortgage any easier.

He said: “I have a client who rents a property she owns for £2,881 a month but the surveyor on the remortgage has said this is higher than normal and has told the lender that it should be £2,500 a month – this latter figure is what the lender will work to, so any attempt to make more money to assist with a mortgage can be thwarted by the surveyors anyway.”

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