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New tax rules and potential solutions for Buy to Let landlords

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New tax rules and potential solutions for Buy to Let landlords

With more than 400 people at our Buy To Let seminars over the past few months, it’s clear that the new tax rules are a major cause of concern for landlords of residential property. We are working with a number of landlords who are planning for the effect of this new regime. They know that if they leave matters until 2017, when the new rules start to take effect, they will be behind the curve.

For some individuals, the answer is a sale of some of their properties to try to reduce their borrowings and hence the effect of a restriction on tax relief for interest on those borrowings. If this decision is taken as the new rules come into effect, some people will be caught up in what might become a rush to sell properties. This is likely to be a buyer’s market and so this could impair the value that can be obtained on a sale of these properties.

For others, the best solution may be to incorporate their properties, and the debt on them, into a limited company. This is a major decision, and one that should not be taken lightly, but we are guiding a number of our clients through this process.

Some landlords now think that they will have to pay the higher rate of Stamp Duty Land Tax on any transfer to a company. While this is true in some cases, it is not always true. Relief is available that can mean that no SDLT is payable on the transfer in the right circumstances. We are discussing this opportunity with clients and, where appropriate, we are obtaining advance clearance from HMRC that the relief applies.

The other potential tax problem is Capital Gains Tax. Again there is the potential for incorporation to trigger a large tax bill, but we are submitting advance clearances to HMRC to get their agreement that relief applies. Agreement is now being secured in some cases and it is becoming clearer who is likely to qualify.

Having obtained the clearances, refinancing the lending in a company can be an issue, but the secured lending specialists in Tait Walker are working with clients and loan providers to facilitate the incorporation of their property portfolios.

If you are a landlord who is worried by the new rules and you want an experienced professional to guide you through the possible steps to take, please contact Chris Hodgson or Dorothy Johnston. Alternatively, you can contact Steven Whitehead, our secured lending specialist.

Chris-Hodgson

Author: Chris Hodgson, Tax Associate

 

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