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Property tax pain expected in April

Property tax pain expected in April

Tax charges on rental property will hit buy-to-let investors hard in April 2017, a tax specialist has warned.

From April 2017, residential landlords will start to "feel the pain" of increased tax on their rental income as they will only get tax relief at the basic rate of tax on a quarter of their mortgage interest.

This is according to Mark Fielden, property tax partner at Kingston Smith, who explained this could have an adverse effect on rents.

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He said: "Landlords are unlikely to suffer in silence so may try to put up the rents on their properties in an already difficult market to compensate them for the additional tax.

“Alternatively, they could join the many landlords who have already formed a company to hold their property portfolios to avoid this tax increase on rental income.”

Moreover, higher-net worth individuals disillusioned with the high tax charges on top-end property may switch from residential to commercial property investment, he added.

According to Mr Fielden: “Top-end London residentials have fallen through the floor.

A perfect storm of Brexit, tax changes and SDLT has been fatal for £3m-plus houses. But there’s plenty of money around that is looking to be invested as a hedge against inflation.

"If a potential investor has the right expertise or advice, commercial property with good tenants might be a profitable place for 2017 property investment."

Other predictions from Kingston Smith included a warning to advisers that salary sacrifice schemes might see a rush during the first quarter. 

This is because schemes covering anything other than pensions, childcare vouchers and ultra-low emission cars implemented after 5 April will no longer generate any tax savings.

Meanwhile, any non-doms based outside the UK will be liable for an inheritance tax charge from April, when they own UK residential property through non-UK companies or trusts.

According to Lynne Rowland, private client tax partner with Kingston Smith: "Most structures which have previously protected the owners from UK inheritance tax will cease to be effective from 6 April 2017.

"The exposure to IHT on properties held through structures completely changes the economics of property ownership as 40 per cent of the value will be lost in tax on death.

"This may cause the owners to sell their properties and invest in assets located outside of the UK.

"For those who wish to retain their UK property it may be a case of back to basics by taking out a life insurance policy to help to fund the eventual IHT charge."

simoney.kyriakou@ft.com