Most landlords use mortgages to invest in property. And if you do use mortgages to invest in property, this article may well be of interest to you. The backdrop is that, the goverment announced in the Finance Act 2015 (section 24) that mortgage interest would no longer be a fully deductible expense from a tax perspective. This change was to be phased in, the full effects being felt from 2020.
Up until now, like other expenses, any mortgage interest you paid could be claimed as a legitimate expense and thus not taxable. However with this change in the law all higher rate tax payers will be pay more tax and also lots of individuals currently in the 20% tax bracket will also pay more tax.
Being pushed into higher tax brackets could also affect child tax credits and student loan repayments. Many households will need to do to some careful calculations to see how they will be affected. Many may no longer view the ‘hassles’ of property ownership worth the journey as other aspects of their life/tax affairs become directly affected by their property ownership.
This will no doubt reduce the number of accidental landlords and those who own only a small number of properties. Especially when you consider the number of other pieces of legislation/regulations landlords have to comply with. Unfortunately, many individuals who very sensibly decided to invest in property as a means of having something to fall back on when they retire, may now be forced to sell.
However, there are a number of courses of action a landlord may choose to take to try and reduce the effects on these changes. This list isn’t exhaustive and it’s always a good idea to try and network with other investors to see what strategies they are looking at.
As I said at the start of the article, these changes are already occuring and those affected need to get a plan in place quickly, as no plan could have severe consequences. And remember as property is not very liquid, if you think selling one or more properties is a serious option, you need to factor in how long it will you to actually implement.
For instance if a property is tenanted (and you want to sell without a tenant which is usually best), you need to give at least 2 months notice, then get the property ready for selling, then pick an estate agent, then find a buyer, then hope the sale doesn’t fall through (1 out of 3 sales fall through). You are looking at 6-12 months!
I hope this articles was of use. Happy investing.
*Disclaimer: The information presented in this article is with information title only. Each landlord’s situation is unique and you should seek professional tax advice before implementing any measures. The information in this article is not intended to be a source of tax advice.