Buy-to-let landlords with larger portfolios could be hit by large capital gains tax bills if they dispose of their properties following tax and regulation changes.
Brokers have been warning clients they could face additional costs if the changes to the buy-to-let sector – including a stamp duty hike on additional properties and the phasing out of tax relief for those in higher income tax bands – force some landlords to sell-off their properties.
Their warnings come amid a crackdown by HM Revenue & Customs on landlords who have undisclosed income, including from capital gains on the disposal of investments such as property.
Capital gains tax is paid on profits made by an individual selling an asset that has increased in value, and it applies to ex-pat landlords as well as those based in the UK.
Research has shown some landlords have been reducing the size of their portfolios due to political uncertainty - and possibly in response to the government’s changes, which have made buy-to-let property a less attractive investment option.
Georgina Partridge, head of marketing and communications at London-based Plutus Wealth Management, said: “It is certainly a conversation we have had with investors who are looking to go down the buy-to-let route.
"It seems a very romantic idea to hold a property as an investment, but you need to take into account taxation on disposal.
“There is no way to avoid capital gains tax. People often ask a question about putting properties into a company to avoid it, but it is not - because you have to sell the property to the company.
“If you are selling to a company, then the company will have to pay stamp duty again on that property. I don’t think non-professional investors consider that.”
Ray Boulger, senior technical manager at London-based John Charcol, said clients would not normally consult mortgage brokers if they were planning to dispose of properties, but added: “On anything tax-related, you would not expect a mortgage broker to give advice but to be aware of the tax implications of what a landlord is going to do.
“It is certainly good practice to point a client in the direction of an appropriate professional adviser if you identify there is some advice that would be appropriate before the client decides what to do.”
Darren Meade, head of mortgages at London-based DeVere, said their tax department was beginning to get more enquiries around capital gains tax from UK investors but not from overseas investors.
“It is something we will be looking at and advising clients on,” he said. “With the tax rules changing recently, we have an obligation to our clients. We don’t want clients to come back to say we have misinformed them.
“If you spot an opportunity where a client may be incurring a tax liability, you would refer them on,” he said.
simon.allin@ft.com
