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Time for landlords to think again

Landlords and letting agents were surprised by an attack announced in the autumn statement.

Following the restrictions on mortgage interest for residential buy-to-let-property, from 1st April 2016 an additional 3% stamp duty will be payable on any buy-to-let or second home bought over £40,000. This means the duty on a £150,000 purchase will increase 10 fold from £500 to £5,000.

Not only will prospective landlords have to pay far more than conventional residential buyers, they also face much heavier taxes on their profits.

The restriction of tax relief on mortgage interest kicks in on 6th April 2017. From then on the maximum tax relief from 45% and 40% to just 20% could wipe out profits or create losses.

There could be a rush to get properties completed before the new stamp duty kicks in. But, investors need to think twice because losses will be more likely if interest rates increase.

One option landlords could consider is buying property in a limited company. There will be no restriction on mortgage interest relief and tax rates on profits will be 18% by 2020.

However, there is a problem for landlords with existing properties. If you transfer a property from your name to a company there is a sale and Stamp Duty and Capital Gains Tax will need to be taken into account.

If you have property as part of your pension planning we recommend you complete a personal financial planning review.

Sackmans can help with with our online financial planning tool.