Mortgage interest tax relief
The government's cuts to mortgage interest tax relief will reduce the profits of many landlords. Before April 2017, landlords were able to deduct their mortgage interest payments from their taxable income before their tax bill meaning they would be taxed on their profits rather than their overall turnover, this offered significant savings, as most buy-to-let investors have interest only mortgages.
Now though, when investors file their tax returns for 2017/18 they'll only be able to claim relief on 75% of their mortgage interest and will get a 20% tax credit on the rest. The rate of interest that can be deducted will continue to drop each year until it is fully replaced in 2020/21 by a tax credit limited to the basic rate of 20% tax.
Capital gains tax
The rules around capital gains tax on property is very complex, The amount that needs to be paid will vary depending on whether you operate as a individual investor or as a company for your portfolio. When selling a buy-to-let as a individual landlord you will need to pay capital gains tax on growth in value of the property, the bad news is that the property is taxed at a higher rate than most other assets. Basic rate taxpayers will need to pay 18% tax on capital gains on their buy-to-let properties, while higher rate taxpayers must pay 28%. For the 2018/19 tax year, you're allowed to make a annual propfit of £11,700 on properties before paying the tax. You can also deduct any buying and selling fees, and claim relief on any significant home improvements.
Landlords given capital gains tax extension
Individual landlords were offered something of a reprieve in last Autumns Budget, when it was announced that the plan to make investors pay capital gains tax within 30 days of selling properties has now been deffered until April 2020. So currently buy-to-let investors can wait until the next tax return to settle any capital gains tax bills.
Setting up a limited company for tax implications
if you're setting up a company for your property portfolio, the spectre of capital gains tax looms large, unless you can prove the property is a business rather than an investment, you will essentially be selling your properties to the company, thereby triggering capital gains tax and 3% stamp duty surcharge. Investors who have set up companies for their portfolios could also face higher bills in the long run when they come to sell their properties.
Stamp duty on investment properties
In April 2016 the government introduced a controversial 3% stamp duty increase for buy-to-let investors and second home purchases. this new tax had a impact on landlords, with the bill on a £200,000 home rising from £1,500 to £7,500.