From 1st April, if you advent already heard, the effective rate of stamp duty on second homes/ buy to let properties will increase by 3%. That means if you’re buying a flat at a price of £1,500,000 you will be paying £138,750 instead of the current rate of £93,750. An increase of £45,000!
This together with the phasing out of tax relief for mortgage interest from 2017 will affect some high rate tax payers where it hurts.
It is calculated that any higher-rate taxpayer landlord whose mortgage interest is 75pc or more of their rental income, net of other expenses, will see all of their returns wiped out by 2020. For additional-rate (45pc) taxpayers, the threshold at which their investment returns are wiped out by the tax is when mortgage costs reach 68pc of rental income. Some current basic-rate taxpayers will also be hit, because the change will push them into the higher-rate tax bracket.
If you’re an overseas landlord holding your property in an off shore company, there are even darker skies on the horizon as 2017 there are new inheritance tax provisions, which effectively means that any such properties will be treated as though they are not in a company and will be subject to IHT at up to 40%. The classic tax shield of overseas SPV’s for buy to let properties will be removed.
Faradays have set up a free consultation with Berkshire Wealth management, who can plan away some of these problems and landlords are advised to get in contact with Lee Magner, who can arrange a mutually convenient time to meet with one of their senior advisers.
This problem isn’t going away, so do get in contact soon.