How landlords can pay less tax

·2-min read
Young couple buying or renting a home or apartment, they are meeting the owner or real estate broker who has the keys; FOCUS on
Young couple buying or renting a home or apartment, they are meeting the owner or real estate broker who has the keys; FOCUS on



It has been widely reported that buy-to-let landlords are already selling their properties, fearful of the cut in tax breaks.

Since the chancellor announced a cut in the amount of mortgage interest relief a landlord can claim, restricting it to basic rate of 20%, there has been a rush by some buy-to-letters to sell their properties.

It has to be assumed that those wanting to sell are the 20% of landlords affected by the new rules who will collectively have to pay the extra £665 million the government is hoping to raise by restricting mortgage interest relief.

If you are one of the people who are worried about the extra tax you are paying, then there are options to reduce your tax bill.

The first is to reduce your borrowing, as the cut in relief only affects those who have mortgaged rental properties and who pay higher rates of income tax.

Baker Tilly tax expert Gary Heynes said it could make sense to reduce financing costs by repaying loans with spare cash instead of leveraging loans.

Those who own properties and have a spouse can also share the tax burden with their other half. Often one person in a couple will take responsibility for the tax return but by splitting profits from a rental property across two people, the tax burden is reduced.

It may also be worth transferring a property in whole or in part to adult children to further spread the tax burden. Sharing the property with a spouse or children also helps to reduce the capital gains tax (CGT) bill when the property is sold and can also minimise inheritance tax (IHT).

If repaying a chunk of the mortgage or spreading the tax burden aren't options that are open to you, then it may be worthwhile considering transferring the properties into a company structure.

Heynes said landlords with many properties could qualify for incorporation relief, which could reduce their costs, and companies also have the added bonus of only paying 20% tax – and this rate should be reducing in the future.

Before rushing to sell, also remember that you do have time to think through your decision. There are a few years to go before the new rules come in and once the lobbying of the rental sector has been heard you have no idea what the final rules will look like.

Read more:

The hidden threat to buy-to-let

Budget 2015 brings buy-to-let nightmare

The best places to invest in buy-to-let property

How to Get a 35% Rental Return on Your Property in the UK
How to Get a 35% Rental Return on Your Property in the UK
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