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New tax rules are being introduced fully from April 2020.

Tax relief on mortgage interest payments will be restricted to the basic rate of income tax which is currently 20%. Relief will be only given as a reduction in tax liability rather than taxable rental income.

  • That means that your taxable income will rise, increasing your tax bill.
  • Higher rate taxpayers will be especially hard hit, but basic rate taxpayers will be impacted too.

The Government has been phasing these tax changes in since 2016. Phasing ends at the end of March this year. The full effect of the changes to tax relief on mortgage interest will be felt from the coming financial year.

The Impact of New Tax Rules

Property investors could be affected in 3 key ways:

  • an increased tax bill on existing buy to let properties with a mortgage
  • reduced ability to offset mortgage interest on mortgages taken out on existing properties for new investments
  • greater liability where mortgages are secured on properties for new investments

But the story doesn’t end there.
That means that there will be significant opportunities for our investors.
But how can there be opportunities when the tax liability for property investors is increasing?

How will the Market Respond?

We believe that “accidental landlords” will be hardest hit. That’s to say those individuals who may have inherited property and hold a mortgage on properties in their portfolio. Or have become a landlord through some other means. But they may not have taken advice that provides a tax efficient property investment portfolio.

We expect to see many landlords taking the decision to sell the properties that they currently own. Many may see their income dwindle and have no choice but to sell thanks to the changes to allowances and deductions.

Just a note about the way forward here and how we can help. We work with individuals and families taking their first steps into property investment right up to seasoned buy to let landlords. We use our in house cash flow forecasting tools to provide detailed information on existing commitments.

We work alongside our clients utilising the data from our cash flow forecasting and our industry knowledge and experience. That means that we are well placed to support you when opportunities like this present themselves.

The Opportunity for Property Investors

We anticipate that:

  • there will be a dearth of well priced opportunities coming into the second hand buy to let market. We will be keeping a close eye on the market and presenting the opportunities to our property investors as they arise
  • Whether you are a new investor or have a larger portfolio, our aim is to ensure that you make the most of this opportunity as it develops during the early part of 2020.
  • For the investor watching the market there is scope to add properties to their portfolios at below market value.
  • That means reduced borrowing over market value properties, and better mortgage deals for those investors that can leverage funding from existing property and improve the loan to value rate.

Once we have identified the opportunities we will work alongside you with our partners to ensure that your portfolio is structured in the most tax efficient way to meet your needs,and mitigate the introduction of new tax rules that will impact the property investment market.

So the tax changes coming from April 2020 will impact some buy to let landlords, but with every threat there comes opportunity for the property investor working towards financial freedom in 2020.