This week, Mortgage Solutions is asking: How do you ensure the tax advice your landlord clients receive is up to standard?
This is a fundamental part of working with landlord clients today and we work with an accountant or tax adviser, so if clients do not already have a relationship, we’re able to refer them on.
There is clearly a lot of ‘noise’ around limited company or special purchase vehicles for landlord clients, and rightly so, given the cuts to mortgage interest tax relief. Go on a number of the landlord forums and there will be ‘advice’ given which effectively amounts to: ‘limited company is the only way to go’.
That is not necessarily the case, and it is important advisers make that clear. It does not stop you from giving your advice and recommendation, but you should ensure that the accountant or tax adviser confirms this is the best option for the landlord.
It’s been said many times before, but this is ultra-pertinent for advisers – you don’t want your client to see your provision of mortgage advice as a cheap form of tax advice, because that’s not what it is. You don’t want to be carrying the can for a client who chooses to go down this route without the necessary tax advice leading the way.
The onus should be put on the client. Be confident in sending that client off to a tax adviser or accountant, because it will be far better for you in the long run.
There are many landlord clients for whom the limited company route might seem like a no-brainer, but it is far better to have the confirmation you need before proceeding. It needs proper consideration by a specialist so make sure you’re comfortable reaching that conclusion, before they go ahead.
We have a clear policy that we do not offer tax advice. We can talk on a very high-level about the subject of tax, for example, the ways rental income is taxed personally vs limited company, but anything more specific than this is beyond our remit, and we never advise on individual situations.
As a business, we are very conscious that our clients need to be receiving tax advice concerning their property investments and that this advice needs to take account of all clients’ circumstances.
What we do is encourage our clients vociferously, to get advice from an appropriately qualified professional. Additionally, we support our clients by directing them on what appropriate questions they should be asking.
We reinforce this by asking our clients to sign a disclaimer to confirm that they have sought appropriate tax advice or, in the absence of this, are wholly comfortable with the way they structure their affairs and how this may impact their tax position.
Over the years, our firm has seen some clients benefit from excellent tax advice as well as some who are given bad advice, which has ultimately cost the client significant amounts of money.
Because of this, we have taken the decision not to recommend or introduce to tax advisers or accountants, owing to the reputational risk to us should bad advice be given.
However, as nothing is better than a recommendation, if a client has an accountant or tax adviser who they speak of very highly, we may share this contact with a client who needs an accountant, but always with the caveat that we are not personally recommending them.
We are very careful to ensure our clients get the best possible advice when it comes to tax. We have a very active relationship with an estate planning firm.
Being central London based and dealing with a fair few investors, the tax liabilities our clients have and are building up can be quite immense.
However, we are extremely clear that we do not offer tax advice but will refer to an excellent firm. We recommend that they take tax advice first, then we can arrange the most suitable finance, as the structure makes a huge difference on the lenders we use.
In a simple example, if using a limited company is best advice, a client may save tens of thousands in tax payments, while only paying a few hundred more in the higher rate on a comparable high street buy-to-let provider. So overall that is best for them.
We let the tax take the lead and we follow.
Tax has become such a complex and divisive issue, we feel it is essential our clients get excellent advice as early as they can to mitigate any issues down the line. Not all clients take our advice of course, but we certainly do recommend that they do.