How should landlords view the new financial year?

By Will Leyland, 10 May 2017

The new tax year arrived in April and brought with it a raft of changes which landlords will have to adapt to over the coming 12 months. Landlords should be taking a good look at their current portfolios and getting smart about their future investments this year.

We’re going to take a look at upcoming and potential changes and be providing you with the best guidance about how to approach the new tax year to make the most of a property market that has seen growth figures close to 10% in some areas. With a strongly performing residential market come more incentives for the government to tax landlords.

First of all, it is now more expensive to purchase a buy-to-let (BTL) property due to the 3% increase in stamp duty. This was introduced last year as a way for the government to cash in on the booming BTL market and look as though it was doing something about the housing crisis. Thankfully for those landlords in the North of England this translated into a relatively low increase in costs for purchasing new properties for their portfolio – especially in comparison to areas in London and the South East which suffer from hugely inflated house prices. In most areas of the country, the small increase in Stamp Duty costs is easily outweighed by continuing house price growth.

This has unsurprisingly translated into a trend where we are seeing landlords move into Northern property markets more and reduce their reliance on the market in London and the South East. The Telegraph, reporting on this trend, said: “The number of new BTL borrowers plummeted from 29,100 in March 2016 to 4,200 the following month, when the stamp duty surcharge was introduced, and has struggled to pick up substantially since, according to figures from the Council of Mortgage Lenders.” The recent news that rental prices in London have decreased for the first time in eight years further emphasises this point.

What we can say with certainty is that the shifting landscape has made the need to get expert advice absolutely necessary – now more than ever. Landlords who aren’t currently using letting agents to manage and offer advice on their portfolios and future investments may find themselves surprised by some of the incoming changes and trends.

It has also been reported that the gradual loss of tax relief on mortgage interest payments from now until 2020 will hit higher-rate and additional-rate taxpayers particularly hard. If a higher-rate payer currently sees £10,000 income a year and has mortgage interest payments of £9,000, the resulting tax bill on the difference is £400. By 2020, that bill will rise to £2,200. The loss in tax relief is likely to push around 440,000 lower-rate taxpayers into a higher tax band, according to the National Landlords Association (NLA).

For this reason we are predicting that even more landlords will make the switch North where entry prices are significantly lower than those in the South and rental yields are higher. With the danger being that some of the tax reliefs on higher earnings could heavily hit profits, many are now keen to reduce the overall value of their portfolio, and for most this means leaving London and taking advantage of the rental hotspots in the Northern regions.

Wherever you are in the country, it is important to appoint an experienced letting agent who can manage your portfolio effectively. For more information on the Intus Lettings service, please click here!

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