Private landlords have been dealt a triple-whammy this year.
In July George Osborne’s Summer Budget announced proposals to restrict buy to let mortgage interest relief to the basic rate of tax for higher tax rate paying individuals – to be phased in from April 2017.
In October, George Osborne confirmed that he had given the Bank of England and the Financial Policy Committee additional powers over buy to let mortgages should the FPC feel that a credit bubble was developing. This would likely result in the power to affect the interest cover ratio in BTL calculations to protect landlords from future interest rate rises.
In November the Autumn Statement announced a 3% stamp duty surcharge on buy to let property from 1st April 2016.
All three announcements will have a direct effect on how landlords run their property portfolios but whereas, prior to the Autumn Statement landlords had a modicum of time to determine a strategy going forward, it is abundantly clear that landlords need to act now in order to mitigate the effects of increased taxation and diktats from the FPC.
What can brokers do?
As mortgage brokers we cannot advise clients on their tax affairs but we can point them in the right direction and recommend that they seek professional advice as a matter of urgency.
It is critical that landlords understand how the changes will affect them personally and get advice on how best to proceed.
The cost of advice could pale into insignificance, compared to the potential costs of poor tax planning.
The main point to press home is that landlords need to act NOW. They should not be waiting until the New Year to get advice, purchase property or transfer existing portfolios into corporate vehicles.
Even as early as February could be too late.
Even though we can’t advise, we have been providing landlords with tools to help them realise that inertia is not an option and they must seek an understanding of where they stand as soon as possible.
Our finance director (my brother Simon, a Cambridge mathematician, chartered accountant and at one time BDO Stoy Hayward partner in the corporate finance division), has devised a spreadsheet to help landlords calculate their future personal tax liabilities and work out whether they might be in a better position if they operated their portfolio using a limited company.
The spreadsheet also factors in the 3% stamp duty surcharge if landlords select an incorporation date after 31st March 2016. Of course, it should be noted that this spreadsheet does not replace professional advice, it merely helps to point landlords in the right direction.
We have also updated our residential Stamp Duty Land Tax calculator which now calculates two rates – what is due with and without the 3% surcharge.
In addition to calculators we have commented widely on the subject to the extent that some clients may feel that we are “banging on” about it. We will continue to bang on if it ensures that the message is heard.
What can brokers expect?
From those landlords who hear the message, brokers can expect a sharp increase in business, particularly from those looking to expand their portfolios or transfer existing property from personal to corporate ownership.
It is likely that an increase in demand will lead to delays along the line. Trade press reports already predict that surveyors and solicitors will be swamped.
So too will the buy to let lenders, particularly those offering buy to let mortgages to limited companies (Axis Bank, Fleet Mortgages, Foundation Home Loans, Kent Reliance, Keystone Buy to Let Mortgages, Metro Bank, N&P, Paragon Mortgages, State Bank of India and the challenger banks).
Bearing in mind that the average processing time on a bog standard buy to let mortgage from application to completion is 6-8 weeks when things run smoothly, brokers need to encourage their landlord clients to act NOW to ensure that they don’t get held up in processing queues brought on by increased demand.
Time is running out to meet the 31st March deadline, so if you are broker, please act now.
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1st December 2015