Tax changes in recent Budgets have certainly complicated buy-to-let advice. Most of the changes were brought in during 2016, creating a more stringent tax environment in what former chancellor George Osborne claimed was a move to make the property market fairer for first-time buyers.Â
New tax rules were:Â
- Imposition of a 3 per cent stamp duty land tax (SDLT) for purchases of rental properties and second homes, from April 2016.
- Retention of capital gains tax (CGT) rates of 18 per cent for basic-rate taxpayers and 28 per cent for higher rate taxpayers on disposals of residential property, where the property was not a primary residence. This rate was reduced to 10 per cent and 20 per cent on other asset types, such as investments. This was brought in in April 2016.
- Also in April 2016 was the removal of the 10 per cent wear and tear allowance that HM Revenue & Customs allowed for furnished rental properties. Now, landlords must document carefully any actual expenditure as this is all that is allowed.
- From April 2017, the government removed landlords' ability to deduct interest paid on buy-to-let mortgages from taxable income. This was replaced with a flat tax credit of 20 per cent of interest paid.
Chris Ioannou, senior independent financial adviser for Prestige IFA, comments: "I would argue, as a respectable mortgage adviser, there's no such thing as a complex buy-to-let case.
"Having said this, a higher-rate tax payer, or someone now moving into the higher rate band as a result of the tax changes being introduced certainly presents both the applicant and the adviser with a lot more to consider and to work through."
According to Mr Hollingworth: "One of the biggest changes that will see clients having questions or seeking more tailored solutions will stem from the phased removal of higher and additional rate relief on mortgage interest.
"As a result it's important advisers keep on top of the changes, and understand what it could mean for landlords, what their options might be and any potential implications of those various options."
Jeremy Duncombe, director of the Legal & General Mortgage Club, says it is important for brokers to "understand fully" what the tax changes are so they can explain these to customers.
"In times of uncertainty and change", he explains, "brokers can show their true worth to their clients who will need more advice and guidance for their buy-to-let property transactions."
Macro-prudential warnings
In addition, the Prudential Regulatory Authority (PRA) has sounded some macro-prudential alarms over the quality of buy-to-let lending.
In 2016, it published a review which highlighted concerns about the seemingly inexorable growth of buy-to-let lenders’ growth plans and how they might meet them.
