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Landlords selling buy-to-let to escape tax crackdown.

Landlords are selling buy-to-let property portfolios to escape tax crackdown, and there has certainly been an increase in the number of buy-to-let property portfolios changing hands or leaving the market completely. In recent years, landlords have had to deal with a multitude of tax changes and ‘Making Tax Digital’ is yet another government rule that will affect many buy-to-let landlords.

Although ‘Making Tax Digital’ will not come into effect until April 2024, it is likely that many of those affected are still unaware of the changes. Many landlords seem unprepared and are still trying to cope with earlier changes to tax relief on interest and repairs. Now that buy-to-let yields are reaching a record low, it is likely that more investors will sell up especially due to the increasing costs of mortgages.

With the rise in interest rates, a landlord on the higher-rate tax, could soon see his profits halve. London landlords will find themselves considerably worse off if the Bank Rate reaches 2.75% or above, and investors will look at alternatives to property.

Landlords can make use of little-known expenses

Landlords may be unaware that it’s possible to claim back for expenses such as the cost of travelling between their rental properties, or phone calls and texts sent about a property.

Subscriptions to property investment magazines, money spent on advertising a property, any legal or accountancy fees and services connected with the buy-to-let may be offset against tax.

Use a company for holding your property investments

Landlords moving their properties over to a limited company can benefit from lower rates of Capital Gains Tax, and this means you are able to deduct your mortgage interest payments from your income on your tax bill.

If you want to sell your rental properties, landlords will pay Corporation Tax on the sale instead of Capital Gains Tax of up to 28 pc. Currently Corporation Tax is 19 pc but from April 2023, this increases to 25 pc for landlords with yearly profits above £50,000.

A company structure is also useful with rental income. To find out more about these perks read ‘Landlord loopholes: how to sell your buy-to-let property and pay less tax in 2022’ which also covers how to be more tax efficient when investing in property.

Buy-to-let companies

Buy-to-let companies have increased phenomenally since 2016.  In 2021 alone, 47,400 new Buy-to-Let companies were incorporated according to Companies House Data. This is due to tighter regulations, and landlords who have found better ways reduce their tax bills.

However, there are hurdles for landlords who want to set up limited companies for their portfolios. While it is relatively easy to set up a company, the property has to be sold to the company at market rate, and for stamp duty purposes an independent valuation would be required. If the property is mortgaged, the transfer would also require the lender’s consent.

David Fell of Hamptons said: “Perhaps the biggest benefit is that all mortgage interest can be offset against tax when holding through a company, while from the 2020-21 tax year, just 20pc of mortgage interest can be offset on properties held in a personal name.”

We advise that before you do anything about transferring your Buy-to-Let property portfolio, speak to a specialist tax accountant who can advise you on the full cost implications and returns.

If you would like to talk to us about your managing your block or your buy-to-let portfolio, we will happily discuss how we help landlords manage and maintain their properties and handle their company accounts.  See our services and rates for more details.

Selling your buy-to-let property portfolio

If you are thinking that with the tax changes in 2023 on the horizon, you might be interesting in selling your portfolio, then please contact us – we might be interested.

Contact Matthew Cox at Charles Cox Ltd or call 01323 894400

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