Mortgage brokers offering advice in the buy-to-let space have been warned not to get drawn into providing informal tax advice to clients, which may ultimately impact badly on their future tax position.
Speaking at last week’s Financial Services Expo in Cardiff, both Roger Morris, director at Precise Mortgages, and Liz Syms, chief executive of Connect for Intermediaries, urged advisers not to discuss the potentially complex tax positions of their buy-to-let clients.
In outlining the changing tax situation for landlords, following the government’s impending cuts to mortgage interest tax relief which will begin next year, Mr Morris said advisers could be inadvertently straying into areas they are not qualified in.
“Mortgage advisers are not tax advisers, however any mortgage you do now is a ‘tax vehicle’ for those buy-to-let clients,” he said.
“Think about the advice process, you can’t say ‘we don’t give tax advice’ but then carry on doing buy-to-let mortgages, because any mortgage you arrange will directly affect the client’s tax position and tax coding.”
Brokers should instead be insisting clients take professional advice from tax specialists and accountants before they proceed, he added.
A paper from the Financial Conduct Authority at the end of May suggested mortgage brokers should consider offering “holistic advice and guidance” and consider borrowing in the context of other circumstances and goals, such as pensions, possible future care needs and inheritance.
However, mortgage networks called the proposals practically unworkable in terms of time, cost and qualification expectations.
Connect for Intermediaries’ Ms Syms meanwhile suggested that when it comes to buy-to-let recommendations, advisers should offer illustrations for both limited company and individual mortgages.
She said: “We know some advisers are providing two illustrations, one for an individual buy-to-let mortgage and the other for a limited company.
“They are then keeping these illustrations on file, along with the recommendation, and the proof that they asked the client to seek the necessary tax advice.”
She also urged advisers to understand the criteria of lenders’ operating in the limited company and houses in multiple occupation (HMO) market. “Brokers need to know exactly what the lenders’ criteria is around limited companies and HMOs.”
When asked by a delegate whether landlord clients might think moving to a limited company structure was too much hassle, Mr Morris replied it was a question of hassle or tax.
“Is it too much hassle to spend an hour creating a limited company, when the alternative is that you could end up paying thousands of pounds in tax?” he pointed out.
Buy-to-let lending to limited companies soared to nearly 38,000 loans in the first quarter of this year, according to Kent Reliance, almost four times the number issued in the same period in 2015, as a result of the April stamp duty hike.