"April 2017 heralds a depressing new dawn for many buy to let landlords who have yet to realise the doomsday scenario they have potentially been dealt by the Treasury"
In response to these sweeping new regulations a number of property, legal and finance professionals have come together to form Buy to Let Restructuring, a specialist property finance firm that aims to reduce the burden on buy to let landlords affected by the tax changes.
Background to the changes affecting the buy to let sector
Buy to Let Restructuring was formed following a landmark move by the Treasury in 2016 that shook the buy to let market to the core. Previous Chancellor George Osborne announced that the current system of mortgage interest tax relief for buy-to-let investors was to significantly change.
Currently landlords pay tax on their profits according to their income tax band but the new laws mean that landlords can only claim the basic rate of tax as relief, regardless of which tax bracket they come under. For those who pay basic rate tax anyway there will be no change, but as many landlords fall into the higher tax brackets this could have a serious financial impact.
Essentially, there has been a removal of landlords’ ability to deduct the cost of mortgage interest from their rental income when calculating a profit on which to pay tax. In effect, the Chancellor will be taxing landlords on their turnover rather than their profit. Ultimately if you are a higher-rate taxpayer, the new tax will obliterate your returns if your mortgage interest is 75% or more of your rental income. Some current basic-rate taxpayers will also be hit, because the change will push them into the higher-rate tax bracket.
The changes will be phased in over a four year period, starting in April 2017.
September’s autumn statement also hit landlords with another piece of bad news in the form of a 3% rise in stamp duty from April for anyone buying a second home, be it a holiday home or buy to let property.
The resulting fall out in the buy to let sector has been significant, with thousands of buy to let landlords selling their homes, and the number of applications for new buy to let mortgages stagnating. Despite these early signs it’s said that general awareness in the buy to let sector of the new taxation laws remains worryingly low, with many landlords completely unaware of their imminent roll out, and large numbers ignorant of the extent of the huge impact they will have.
Buy to Let Restructuring
Cardiff based Buy to Let Restructuring was established to provide a solution for beleaguered landlords affected by the changes. The company creates a corporate umbrella in the form of a limited company, for a landlords existing property portfolio, the principal benefit being that landlords will now only be subject to Corporation Tax at a lower rate of 20% (reducing to 17% in 2020).
This solution effectively side steps the incoming taxation regulations based on income tax, by ring fencing a property portfolio within a corporate structure.
Buy to Let Restructuring was founded by a number of highly regarded property, legal and finance professionals who each have a role to play in the development of the new corporate structure to house a landlord’s property portfolio.
Mark Andrews has an extensive background in property investment and a large buy to let portfolio. He is the Director of Loftco, an award winning property developer based in Cardiff, whose recent projects include The Pumphouse in Barry and Tramshed in Grangetown. He is currently developing the forthcoming Box City container village in the heart of Cardiff Bay, a landmark development combining shops, restaurants, offices, accommodation and pop-up markets, all housed within shipping containers.
Chris Coates LLB is an experienced lawyer who specialises in property investment, management and development. Chris is a landlord himself and spent several years away from private legal practice working in a property business.
Gary Lewis CeMap is the Principal of ACG Financial Ltd, a Financial Services practice based in South Gloucestershire. Gary has been working in the sector for 28 years having worked previously for TSB Bank, Skipton Building Society and Norwich and Peterborough Building Society.
Gary Butt (Accountant) has over 25 years of experience within practice and has a wealth of accounting and tax knowledge.
Mandy Davies (Accountant) •has over 25 years practical finance experience both in private practice & within the hotel industry.
Mark Andrews, had this to say: “April 2017 heralds a depressing new dawn for many buy to let landlords who have yet to realise the doomsday scenario they have potentially been dealt by the Treasury.
Many hard-working, responsible landlords will have their finances thrown into disarray and pension plans in ruins. And for many tenants it will mean the loss of their homes because vast numbers of landlords will be forced to exit the market, or significantly increase rents to cover their elevated costs. What’s particularly troubling about the imminent new changes, is a worrying lack of awareness about the huge financial implications for buy to let landlords.
Last year a poll showed that the vast majority of people still think buy-to-let is a great idea — particularly for retirees. I think it’s something we have been conditioned into over the years due to the fact that so many people have made an excellent living within the buy to let sector.
However, unless awareness about the changes April will bring is generated immediately, followed by swift action on the part of landlords, the industry is facing something of a crisis.”
