85 percent of British people are unaware of the tax relief rule coming into effect next month, which will cut the amount of tax relief that landlords are able to claim on their interest payments.
Currently landlords are able to claim relief of up to 45 percent on their interest payments, leading some to speculate that landlords will pass these costs on to their tenants in the form of rent increases.
Ray Boulger, mortgage market guru, says the best way for prospective and current landlords to retain maximum profit is to ensure they seek specialist advice.
“The new way to calculate income may push lower rate tax payers into the 40 percent tax bracket. There will be a substantial effect on landlords who receive child benefits – especially those who have more than one child – and for those who will find themselves in the 45 percent tax bracket,” Boulger said.
“For new purchases setting up as a limited company is one option, as properties held in a limited company structure still qualify for tax deductible mortgage interest rates.”
“However, the impact of Capital Gains Tax and Stamp Duty Land Tax will often mean it is not worth switching properties already owned to a limited company structure,” Boulger concluded.
According to the National Landlords Association, rental property investors are currently paying less tax by using commercial loans and setting up companies to buy investment property, enabling them to pay corporation tax at 20 per cent.
Research by ExperienceInvest