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Changes to the UK tax system – a guide for property investors

Kent Reliance for Intermediaries and Ernst & Young (EY) have collaborated to create a guide for property investors on the changes to the UK tax system.

The guide, which is titled ‘Changes to UK Tax Relief on Finance Costs’, has been produced to inform its intermediary partners on the key considerations faced by their landlord clients and how they run their rental portfolios.

The guidance concentrates on the implementation of constraints to buy-to-let mortgage tax relief on April 6 2017, which has significantly impacted landlords and the profitability of their portfolios in the years since.

Before April 2017, landlords and investors had been able to deduct 100% of their home finance costs from their rental income to calculate the taxable rental profit. However, the restrictions – the brainchild of George Osborne and continued by successive Tory Chancellors – have been gradually phased in and now, in the tax year 2020/21, there is no allowable deduction for finance costs at all. As well as advice on the changes to mortgage interest tax relief, the guide also lays out each tax that landlords must take into consideration before purchasing, transferring into a company structure (incorporation) or selling an investment property. This includes the Capital Gains Tax liabilities of incorporating and the implications of buying or transferring property for stamp duty land tax and inheritance tax.

Adrian Moloney, group sales director at OneSavings Bank, which owns the Kent Reliance brand, said: “Our broker partners have told us that even though Covid-19 has impacted the purchase or remortgage activity of their clients, professional landlords are not standing idle. Many are taking advantage of the current situation to re-evaluate their investments, in order to maximise opportunities when normality returns.” He added: “The latest edition of our ‘Changes to UK Tax Relief on Finance Costs’ for buy-to-let owners informs our broker partners of the key considerations facing their clients regarding the tax changes.”

Moloney said it was the company’s hope that the guide ‘will be a source of information for landlords and brokers about their portfolios but, of course, this shouldn’t be seen as a substitute for professional advice’. “We always recommend to our broker partners that they advise clients to seek advice from an accountant or tax adviser to ensure they are fully aware of their portfolio’s tax
liability,” he advised.

Martin Portnoy, partner at EY, commented: “Whether you hold an interest in UK property for personal use, as part of a property business or for investment purposes, the UK taxation landscape can be challenging. Professional advice is essential and can add great value”.

You can request a copy of the guide here.

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