Landlords face problems at the end of this tax year if they have not taken on board mortgage interest tax changes unveiled in 2015, according to Kent Reliance.
The 2015 Budget announced three separate reductions to the tax relief on mortgage interest payments.
The first came into effect in April 2017, meaning landlords will only be able to claim back 75 per cent of finance costs when they file their returns ahead of January 2019.
By April 2020, landlords will no longer be able to deduct any of their mortgage expenses from their rental income when calculating their tax obligations.
Landlords can move properties into limited companies or put them in the names of spouses to get around the new rates.
However, Kent Reliance research suggests that only one in five landlords have done either.
Only a further one in six (13 per cent) plan to do so in the future.
The lender adds that 15 per cent of landlords do not understand the changes enough to value taking any sort of action.
A Kent Reliance statement says these landlords “could be in for a rude awakening when they file taxes for the year 2017/18”.
Small and large-scale landlords are split on the decision to incorporate.
Fifty-eight per cent of those with one to five properties in their portfolios,do not think they would benefit from changing to a limited company or transferring ownership.
This figure drops to 27 per cent for larger professional landlords with more than 20 properties in their portfolios, well below the average of 53 per cent for all landlords.
OneSavings Bank sales and marketing director Adrian Moloney says: ““Landlords have had nearly three years to understand and prepare for the changes to the tax treatment of mortgage interest. Most have risen to the challenge, but a few might have quite the shock when they come to file this year’s tax return.
“As the tax year draws to a close, brokers can use this opportunity to engage with their clients, make sure they’re aware of the potential impact on their finances.
“Many landlords have sought to move to a limited company structure, or transferred ownership to a spouse but it’s not a one-size-fits-all solution so it’s vital that landlords affected seek professional tax advice.”