Landlords have been battered by a string of new rules and it is up to advisers to guide them through the changes
The buy-to-let market has experienced a whirlwind of changes in the past year.
Landlords have been battered by the Chancellor with a change in regulatory status and are now subject to new underwriting rules from the Prudential Regulation Authority.
Furthermore, landlords and their advisers are grappling with the change to mortgage interest tax relief, due to be implemented from April, which will drop from 45 per cent over four years, eventually falling to the basic rate of 20 per cent.
Landlords will also no longer be able to deduct the cost of their mortgage interest from their rental income when they calculate their yearly earnings and how much tax they owe. In addition, their tax liability will be based on turnover, rather than profit, and so could be due even on non-existent income. For higher-rate taxpayers. This will have a huge impact as mortgage costs above 75 per cent per cent of rental income could render their buy-to-let investment loss-making.
There are still prospective and existing landlords who are not fully apprised of the impact of the changes. As such, it is essential that brokers are in regular contact with their landlord clients to guide them through the changes. Landlords will be looking at the structure of their portfolios to limit their exposure to tax so it’s pivotal that brokers work closely with clients’ accountants and tax advisers. The broker’s role here is constrained by the need to execute the plan previously prepared by the client’s accountant.
To that end, a copy of the accountant’s advice should be retained in broker’s files. It’s equally vital that brokers avoid giving further detailed commentary or debate around the topic of tax treatment of BTL portfolios – as this could be construed as advice and relied on by the customer.
There are challenging times ahead for landlords and clients will need all the help and support they can get.
Toni Smith is sales operations director at First Complete and Pink