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The start of the 2019 - 20 financial year means yet more changes to mortgage interest tax relief for private landlords. What do this year's changes mean for you, and what are your options for reducing your tax liability and maintaining a higher rental yield?

What Changes Have Been Made to Landlords' Mortgage Tax Relief?

It was announced by then Chancellor George Osborne in the July 2015 budget that mortgage tax relief for landlords would be gradually removed. From April 2017, landlords have received a tax credit for their mortgage interest, but this is being gradually reduced over a four-year period so that by 2020, it will be no more than the basic rate of tax, which is currently 20%.

Furthermore, as landlords are now taxed on their rental income rather than on their profit, many who are lower rate tax payers have been tipped into a higher tax bracket. Even landlords with modest rental incomes faced higher tax bills from the 2017-18 tax year, and will have recently paid a higher amount of tax for the first time in January 2019.

In the 2019 - 20 tax year, landlords are restricted to claiming tax relief on just 25% of their mortgage interest. This further increases landlords' taxable profit, and thus further reduces rental yields.

Click here to find out your additional tax for 2019

While some landlords have started to sell off their portfolio, and others have put up the rent, there are a number of ways that landlords can protect their rental yield, reduce their tax bill, and continue to provide an exceptional service to tenants by avoiding passing on costs.

Setting Up a Limited Company to Manage Your Properties

Following the July 2015 budget, 40% of landlords stated they were considering moving to a limited company model to manage their buy-to-let properties. As of March 2019, only 6% of landlords had actually done so.

What Would be the Benefits of Managing My Buy-to-Let Via a Limited Company?

Limited companies can still claim 100% mortgage tax relief against properties they own. By transferring the properties to a limited company, landlords can then claim the full amount as a reduction against what will be their corporation tax bill. Landlords can then take payments as a dividend once corporation tax has been paid against the profits of the company.

Is There a Downside to Transferring My Buy-to-Let Properties to a Company?

Potentially. When transferring the property to the company you may become liable for capital gains tax as an individual, and the company will have to pay stamp duty. Keep in mind that you as an individual are "selling" the property, and the company is "buying" the property. Practically, we know nothing will change in how you manage your portfolio, but the last thing you want to do is land yourself with unexpected tax bills on both sides of the fence while making your transfer.

You may also need to change your buy-to-let mortgage to a company mortgage. These can be more expensive and more difficult to find, so it is worth doing your research before jumping straight in and deciding to use the limited company model because it will reduce your tax bill.

If you need advice on whether the limited company model would be beneficial for your individual circumstances, by joining the Upad Landlord Club you will be able to access legal and tax helplines that will enable you to make informed planning decisions about how you manage your buy-to-let portfolio.

Find out more about the Upad Landlord Club

What Else Can I Do to Reduce My Tax Bill?

tax_buy_propertyIn addition to the guidance we provide in the two articles we've linked to above, another option is to transfer more of your rental income with your partner or spouse - if they own the property with you - if this will prevent you from falling into the higher tax rate bracket.

Married couples are automatically taxed on the basis of the rental income being split 50/50 between you, however by completing HMRC Form 17 couples can change the split of their rental income. This could impact on other taxes and benefits, so again it is worth taking advice before making any decisions.

How Can I Reduce Letting Costs Instead of Increasing the Rent?

For one, having minimum or no void periods will be the first thing to work on. To allow this, landlords need to work on how they present their property and how they market it.
It may take some of you up to 3/4 weeks to find the right tenant, and ultimately you lose a months' rent.

Therefore, it's essential you find the right solution and letting agent for you. This involves looking at what your spending with your current agent and if you can start self-managing more aspects of your property.

What steps have you taken in recent years to reduce your tax bill? Has the reduction in mortgage interest relief, or other legislation such as the tenant fees ban, changed how you manage your buy-to-let business? Have you started to sell off your portfolio, or are you continuing to add more properties to it? Let us know in the comments below!

Click here to find out your additional tax for 2019


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By Sandra Mpouma
11 Apr 2019

Categories: Tax, Buy to Let, Section 24



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