Like most good businessmen, buy-to-let investors stress test their businesses and plan ahead. They are aware more than most of the impact a rate rise will have on their portfolios, for example.
So while the national press promotes mass hysteria at the mere suggestion of a rise, most landlords have already factored it into their plans. Indeed, a rate rise is not totally unheard of (even if we have been living in this static rate environment for a good few years) so good investors have already considered the impact of one.
The same goes for natural disasters, such as weather damage or burst pipes. A sensible landlord will have taken out adequate insurance covering them and their property for all eventualities. We have even seen demand from landlords wanting to plan for their families in the event of their death.
So it follows that many landlords will also want to plan ahead to ensure they are fully prepared for the Government’s proposed cuts to landlord tax relief. If tax relief is set at a maximum of 20 per cent, this will have a significant impact on a landlord’s profits. In order to deal with such a change, they must take steps now.
The problem is that we have not been given enough information or clarity to make any solid plans. It is all well and good trying to plan ahead but when you are working from some pretty vague details you are unlikely to get far.
I expect we will see more landlords looking to own properties via a limited company, which will not only allow all the tax to be deductible but will attract a corporation tax rate of only 18 per cent by 2020.
For existing landlords, however, moving property into a limited company could lead to capital gains tax and incur stamp duty. I hope the Government will provide greater clarity on the proposed cuts in the coming months.
I have always said that landlords are an adaptable bunch and will mostly take what is thrown at them head on. However, such changes to the way buy-to-let has fundamentally worked will require them to be fully prepared. As good mortgage advisers, we should arm them with the correct information to make the right decisions.