The buy-to-let market never stays still for very long. From a legislative standpoint, there are numerous changes coming into play for 2018. Some of them are big news for landlords looking to maximise the yield from their portfolio.
The financial experts at GoSimple Software have been keeping a close eye on these developments. To give you an insight into what’s coming, they’ve pulled together some of the main points of interest for the New Year.
Mortgage interest tax relief is being phased out for higher and additional rate tax payers
Before April 2017, landlords could use their mortgage payments to offset tax bills for each property at their highest rate of tax. Interest costs were counted as an allowable expense. However, this tax relief has been restricted so that only 75% of your mortgage interest payments benefit from tax relief at the higher rates; following tax years (2018/19 and 2019/2020) will see further reductions to 50% and 25%, before it’s eliminated altogether by 2020/2021.
You’ll still get a basic-rate tax band for your mortgage costs (20%). To consider the impact of these changes on your portfolio and finances, it’s worth consulting an expert or using Upad’s free calculator.
Inefficient properties will be at risk of fines
Next year will see a crackdown on properties that waste too much energy, with severe penalties for those who don’t adhere to EPC (Energy Performance Certificate) guidelines. From April, properties available to rent must have an EPC of E or above when a new tenancy agreement is being set up.
If this isn’t the case, you’re liable for a £4,000 civil fine. Eventually the EPC laws will apply to every tenancy – not just those you’re agreeing to for the first time, or re-drafting for a returning tenant.
PRA rules are tougher on mortgage financing
Anyone who owns four or more rental properties is classed as a ‘portfolio’ landlord. From 2018, the Prudential Regulation Authority (PRA) is stipulating that lenders must look at all your properties before they agree to another mortgage plan.
Financially healthy assets in your portfolio are generally termed as those that cover their interest with rental payments. However, a weak link in the chain may be enough to dissuade the bank or investor from lending, even if it’s just one instance of a low-yield rental space. Any property that brings in less than you pay out for its mortgage, month-to-month, could be a valid re-sale option.
These are the three largest curveballs to consider in 2018. Saving cash has never been more important – to do so, think about taking on SimpleTax, the best, cloud-based software in the UK for a streamlined tax assessment. It’s been built with an eye for the closest details of your rental business; every expense, record and tax break is accumulated over the year, giving a faultless portrait of what you owe.
Try SimpleTax today for an up-to-date view of your tax position. For the changes to come, it’s a well-deserved aid when seeing how costs can be saved, and storing the records to prove it.