With the chancellor’s various tax changes, it will be imperative for potential landlords to seek professional financial advice about all aspects of buy-to-let investing.
According to Christine Newell, mortgages technical director at Paradigm Mortgage Services: “Every client with additional property will be affected to differing degrees by these new changes and an adviser will need to know in some detail what these rules are and how they will affect the client.”
Advisers also need to know their limitations, however. Many of the taxation changes will have specific, detailed and technical tax implications for the multiple buy-to-let landlord, on which a mortgage intermediary may not be able to advise.
Therefore, as Jeremy Duncombe, director of the Legal & General Mortgage Club says, it will be critical to encourage the client to seek an accountant’s advice, or to use your firm’s professional network and partnerships to give clients access to specialised tax advice.
This would be especially true if the client were to consider the use of a special purpose vehicle (SPV), as this will need accountancy fees for setting it up, advice on corporation tax and on the loss of capital gains allowances.
Mr Duncombe added: “Many landlords will be seeking advice to determine the best course of action and will naturally turn to their advisers with questions.
“It is crucial that brokers do not provide tax advice unless they are qualified to do so. It is the adviser’s responsibility to make sure their customers are aware of the changes, but they should also refer their clients to an independent tax adviser.”
As a starting point, there are tax calculators on the HM Revenue & Customs and the Registered Landlords Association (RLA) websites that can help to give advisers some comparisons for clients, showing the before and after of the tax changes.
Tax matters aside, there are many other things on which a client will need advice; diversification being one. Ms Newell stated: “Buy-to-let landlords may look to expand their portfolios in other areas of the country looking for cheaper stamp duty bills and higher rental yields.
“For example, a six-bedroom house in the Surrey commuter belt may give some good capital growth in the long-term, but initial outlay and income yield will be much lower and your rental audience restricted to a certain group.
“However, having this property as part of a portfolio around the UK could balance these risks out.”
Bob Young, chief executive of Fleet Mortgages, agreed on diversification but added that clients should be encouraged to stick to what they know. “Clients should not get suckered into buying cheap property in a part of the country about which they know nothing.
“If clients choose an area they don’t know well, advisers should make sure clients understand how the local economy works.”