Andrea Wong, 18 April 2017
A raft of government reforms aimed at fixing the ‘broken market’ has been the cause of a turbulent few years in the buy-to-let market. Early in April a reduction in mortgage tax relief came into play, although the impact does not appear to be as detrimental to landlords as widely expected.
The months leading up to the tax change deadline of April 6th were full of speculation about how the face of the buy-to-let market would change. However, landlords remain optimistic and are starting to understand the implications behind tax changes. This enables them to create a steadier picture for their future.
According to a report from Paragon Mortgages, 78% of landlords surveyed acquired an understanding of the new regulations and how they will affect them personally, up from 71% in Q4 2016. This percentage comprises the more experienced landlords who are eager to take the crucial step so that they can adapt quickly and find the most lucrative option for their properties.
Widespread reports indicate that many landlords are turning to limited companies to beat buy-to-let taxes, with a dramatic rise in applications. In response to the taxation changes, the number of people applying for loans through limited companies has risen to 77% in the first quarter of 2017 from just 21% in 2015.
Some landlords purchased properties through newly set-up limited companies, whilst others transferred their existing properties to limited companies. Owning their properties as a limited company allows them to avoid the tax changes, whilst instead they will pay Corporation Tax, which is currently at 20% but will fall to 18% from 2020.
Strategically using private companies is not the only option, with many landlords transferring ownership to a spouse in a lower tax bracket. The risk is that the cost of transferring homeownership may outweigh the benefits.
For other property owners it seems to be a matter of increasing rent if tax bills outweigh their profit, but the risk is that tenants will be deterred from the property if the rent price increases too dramatically. Experts believe that if landlords become better informed on the regulations they can manage their properties in the most cost effective way, whilst it will also ensure that changes to house prices will be less drastic.
Property owners will not be fully impacted by the latest tax changes for another few years, so many investors in the industry remain cautious about how the market will change its face in the future. However, this has not discouraged investors from extending their investment portfolios with confidence high among professional landlords. At a time of low interest rates and volatile stock markets, property is still an incredibly attractive investment.
When you have built an effective portfolio it is important to make sure that it is managed properly as well. If you are looking for advice on property management then please get in touch with the experts at Intus Lettings today!
Andrea Wong, 18 April 2017