Landlords beating the taxman

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Landlords beating the taxman

Landlords have only recently started to feel the full effects of the cut in relief.

The deadline for filing tax returns that had to reflect the full impact of the cut was in January this year.

Now, rising interest rates – which are pushing up mortgage costs – will massively amplify the hit to their profit margins.

Chris Etherington of RSM, an accountancy firm, said: “Many landlords frankly could be loss-making as a result of the tax changes.”

Soaring interest rates will be a huge blow for landlords who hold properties in their own name. With buy-to-let mortgage rates at 4pc, a landlord with 12 mortgaged properties producing rental income of £100,000 will pay £28,200 in income tax and have a take-home profit of £27,800, Mr Etherington calculated.

If mortgage rates climbed by two percentage points to 6pc, the landlord’s take-home rental income would plunge by 42pc to just £16,200.

By comparison, if the same properties were held in a limited company the landlord’s take-home profit with mortgage rates at 6pc would be double that, at £31,185.

This is because the landlord with a limited company can offset the rate rises against their tax bill. These calculations assume the properties are owned by a married couple who are higher-rate taxpayers and that the properties have a total value of £1.5m with mortgages of £725,000.

The landlords who are buying incorporated portfolios also get huge stamp duty benefits. If an investor were to buy a portfolio of properties as an individual, they would pay stamp duty on each property with a three percentage point additional homes surcharge.

Buying the shares of an existing property company, however, comes with only a 0.5pc charge on the purchase price.

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