Landlords

to letHow landlord tax is changing

When George Osborne announced the change, he implied that the extra tax would hit only higher-earning landlords.

It’s true that every mortgaged landlord who pays 40pc or 45pc tax will indeed pay much more under his proposals.

But some basic-rate taxpayers will also pay more tax – because the change will push them into the higher-rate bracket.

In fact, contrary to Mr Osborne’s suggestion, the only buy-to-let investors who will not be hit are the very wealthy who buy property in cash and who don’t need a mortgage.

At the heart of the change is landlords’ future inability to deduct the cost of their mortgage interest from their rental income.

In other words, tax will be applied to the rent received – rather than what is left of the rent after the mortgage interest has been paid.

Here is a worked example assuming you, the landlord, pay 40pc tax.

NOW

Your buy-to-let earns £20,000 a year and the interest-only mortgage costs £13,000 a year. Tax is due on the difference or profit. So you pay tax on £7,000, meaning £2,800 for HMRC and £4,200 for you.

2020

Tax is now due on your full rental income of £20,000, less a tax credit equivalent to basic-rate tax on the interest. So you pay 40pc tax on £20,000 (ie £8,000), less the 20pc credit (20pc of £13,000 = £2,600), meaning £5,400 for HMRC and £1,600 for you. Your tax bill has therefore gone up by 93pc.

Now, say Bank Rate – and in turn your mortgage rate – rises by a small fraction, lifting your mortgage cost to £15,000, while your rent remains at £20,000.

You will have to pay £5,000 tax in this scenario, so you make no profit at all.

 

smoke alarmSmoke alarms and carbon monoxide alarms to become the law

Landlords will be required by law to install working smoke and carbon monoxide alarms in their properties, under new measures announced by housing minister Brandon Lewis.

The government says the move will help prevent up to 36 deaths and 1,375 injuries a year.

This measure is expected to take effect from October 2015, and comes with strong support after a consultation on property condition in the private rented sector.

England’s 46 fire and rescue authorities are expected to support private landlords in their own areas to meet their new responsibilities with the provision of free smoke alarms, with grant funding from government.

Lewis said: “In 1988 just 8% of homes had a smoke alarms installed – now it’s over 90%.

“The vast majority of landlords offer a good service and have installed smoke alarms in their homes, but I’m changing the law to ensure every tenant can be given this important protection.

“But with working smoke alarms providing the vital seconds needed to escape a fire, I urge all tenants to make sure they regularly test their alarms to ensure they work when it counts. Testing regularly remains the tenant’s responsibility.”

The proposed changes to the law would require landlords to install smoke alarms on every floor of their property, and test them at the start of every tenancy.

Landlords would also need to install carbon monoxide alarms in high risk rooms such as those where a solid fuel heating system is installed.

Those who fail to install smoke and carbon monoxide alarms would face sanctions and could face up to a £5,000 civil penalty.

Alan Ward, chairman of the Residential Landlords Association said: “This is a policy that we campaigned hard for, and was a key part of the RLA’s manifesto for the private rented sector.

“Proposals for funding to provide free smoke alarms to landlords are particularly welcome and I look forward to seeing the details of this.”

Mortgages
life insurance
home insurance
equity release

We offer whole of market advice for all types of customers, whether you are a first time buyer, home mover or looking to purchase a buy to let property. Being independent we are able to offer impartial advice from the whole of the market to ensure you get the product that suits your financial needs.

Whether you are looking to protect your mortgage payments or your family, we provide independent advice for life insurance, critical illness cover and income protection from a wide range of providers.

Buildings Insurance is a requirement when you complete on a mortgage the cover is to provide security to the lender, the insurance covers the main structure of your home. It will cover you for subsidence, storm, flood, fire or smoke damage and cover the costs of rebuilding or repair.

Equity release is a way of releasing cash from your property, either through selling a percentage to the reversion company or taking a mortgage on it, while allowing you, the homeowner to continue living there as long as you wish.