Your IndustryJan 30 2014

Taxation and regulation of large buy-to-let portfolios

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Multiple buy-to-let investments are taxed in exactly the same manner as any single buy-to-let investment: the investor will be liable for a combination of income tax on net rents/profits and capital gain tax on the proceeds of any sale.

Christine Newell, partnership manager of Paradigm Mortgage Services, says multiple buy-to-let investors will be able to offset certain costs involved in setting up their buy-to-let portfolio and can refer to a qualified accountant to get suitable advice on this.

The only thing that might be different with the taxation of multiple buy-to-let investors is that larger investors will often hold much of their property portfolio in limited companies, limited liability partnerships or family trusts where different tax legislation can apply.

If someone has multiple buy-to-let properties, Ray Boulger, senior technical manager for John Charcol, says they may want to stagger the sales of the properties in order to take advantage of the annual capital gains tax relief.

Steve Olejnik, sales director of Sevenoaks-based broker Mortgages for Business, says many landlords are carrying forwards previously losses because of money spent on the property, etc. It is vital that an adviser knows about this and any action taken to reduce tax as a result.

Mr Olejnik says: “Some of the mainstream lenders just will not understand that and may see a return from HM Revenue & Customs showing nil income and feel they cannot tick a box stating the investor has at least £20,000 in income.

“We know the lenders that understand portfolio landlords and they would be able to see that perhaps this type of investor is doing it very tactically and tax-efficiently and carrying forward their losses. Those are the sort of conversations we have.”

However, Mr Olejnik says mortgage advisers do not have to be tax experts in order to advise their clients about multiple buy-to-let.

He recommends simply asking if they have a tax adviser to make sure they are investing in a portfolio of buy-to-let properties as tax-efficiently as possible and, if they are, finding out the details as the lender may require this information in order to come to a decision.

Ultimately, standard buy-to-let and portfolio buy-to-let mortgages are not regulated in the same way as residential mortgages.

Paradigm’s Ms Newell, says advisers should always remember that multiple buy-to-let mortgages are regarded as an extension of the commercial mortgage market. Lenders and introducers are governed by their own codes of conduct, policies introduced to ensure that all clients are treated fairly and their applicable governing, professional and trade bodies.

Ms Newell says as the industry moves through to the impending regulation of the Mortgage Market Review and the European Mortgage Credit Directive, regulation in this area could become more aligned to a residential purchase and remortgage.

But Ms Newell points out the regulation of multiple buy-to-let mortgage deals is yet to be decided upon and the characteristics of the UK’s unique buy-to-let market will need to be considered as it is very different to other European countries.