In recent weeks there have been changes that affect those looking to obtain Buy to Let Mortgages. Below states the latest news in a Buy to Let Mortgage Guide…

BUY-TO-LET MORTGAGES – WHERE ARE WE NOW?

In his Autumn Statement, George Osborne announced that from April 2016 there would be a new stamp duty charge on the purchase of additional properties such as buy-to-lets and second homes. Purchasers will pay an extra 3% in stamp duty.

The details are the subject of a government consultation. For someone buying a second property for £175,000 the stamp duty will rise from £1,000 to £6,250.

The Chancellor believes that this is the right course of action because: “Frankly, people buying a home to let should not be squeezing out families who cannot afford a home to buy.” In addition, the Chancellor introduced a new rule requiring Capital Gains Tax to be paid within 30 days of selling a property from April 2019.

These moves follow the introduction of new measures in the Chancellor’s Summer Budget that are set to reduce the tax relief available on buy-to-let mortgage interest payments.

TAX CHANGES

Landlords who had been able to claim tax relief worth 40% or 45% will find this restricted to 20% once the changes are fully implemented. Currently, those with Buy to Let mortgages can deduct all finance costs (such as mortgage interest, interest on loans taken out to furnish the property and fees) in arriving at their profit. From April 2017 this will no longer apply.

They will instead receive a basic rate reduction from their income tax liability for their finance costs. However, the new rules won’t be fully in place until 2020 as the relief will be tapered down. For example, in tax year 2017-18 the deduction from property income will be restricted to 75% of finance costs, with the remaining being as a basic-rate reduction

ALLOWABLE EXPENSES

You can reduce the overall tax bill by claiming what HM Revenue & Customs (HMRC) categorise as “allowable expenses”.

Permitted deductions include letting agent fees, insurance premiums, professional and legal fees, and utility bills if these aren’t paid by the tenant. In the face of the new measures, it will be worthwhile for landlords to consult the list carefully to ensure they have included all justifiable expenses, especially as the 10% wear and tear allowance will be scrapped from April 2017. Landlords will, from then on, only be able to deduct costs they actually incur.

UNPAID TAX

HMRC has for some time now been running a Let Property Campaign to encourage landlords to voluntarily get their tax affairs in order.

Since 2013, more than 10,000 landlords have come forward and disclosed previously undeclared income, bringing in more than £50m. HMRC is actively targeting what they see as tax evasion by residential landlords.

Those who take the opportunity provided by this campaign to make a voluntary disclosure will be offered the best possible terms and have three months to calculate and pay what they owe.

It is important to take professional advice before making any decision relating to your personal finances. Information within this newsletter is based on our current understanding of taxation and can be subject to change in future.

It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain.

Levels and bases of, and reliefs from taxation, are those currently applicable or proposed and are subject to change; their value depends on the individual circumstances of the investor.

For more information on Buy to Let Mortgages, Clifford Osborne have an IFA based in Eastbourne, East Sussex and serve clients in Uckfield, Bexhill, Lewes, Hastings, Seaford, Newhaven, Brighton, Hove, Tunbridge Wells and Crowborough.