Home Front logoLandlords are gearing up for the new tax changes due to be implemented from April following the chancellor’s decision in the 2015 Summer Budget to cut mortgage interest tax relief. The government will phase out higher rate tax relief on mortgage interest for buy-to-let properties. The maximum relief for higher-rate taxpayers will fall to 20% in 2020.  The fall out of that decision understandably will be a huge concern for landlords given they will now earn little to no profit from their investment whist renting. Limited companies are not affected by the changes to mortgage interest tax relief so many landlords are therefore setting up a company to minimise the impact of the new tax regime. However, don’t be ignorant on this matter and see it as an easy solution, it’s important to remember that HMRC will treat any transfer of ownership of a property as a sale, so there could be a capital gains liability if they were to do so. Moving to a limited company could also mean that mortgage options will be less attractive as lenders offer a restricted choice of home loans to companies. Another consideration is that a landlord could transfer ownership of the property to a spouse or partner who is in a lower tax band but again, there are Capital Gains Tax implications. The hard stance on landlords does not stop at mortgage interest. Along with the interest tax relief the chancellor also imposed tighter restrictions on the wear and tear allowance too where landlords will no longer be able to automatically deduct 10% of their rental profits as wear and tear. They will be able to claim tax relief only on costs they have actually incurred, such as if they have bought a new mattress or bed for the property. They will also have to keep receipts. Previously, landlords could write off the 10% even if they had not spent a penny on repairs or replacements. And of course further impacting the BTL investor is the Stamp duty surcharge for landlords also announced in the Autumn Statement. All in all if you are in it for the long haul you will of course as long as you buy in the right spot realise a healthy capital appreciation which is where most landlords see their second arm of return but if you were hoping to reap a pot of money from the rental income think again, the only beneficiary here will be HMRC