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Top tips: A few options to help protect your profits and limit loss

The anti-landlord policies adopted by the government has had an adverse impact on private landlords, especially the smaller players, over the last 18 months or so, deterring many from investing further in the PRS, as reflected by a sharp fall in buy-to-let activity.

Thousands of private landlords could be unfairly pushed in to a higher tax bracket following the introduction of new taxation rules for buy-to-let property, based on what the Residential Landlords Association (RLA) claim with the benefit of hindsight are ‘clearly false assumptions’.

Landlords have been hit by the introduction of a 3% surcharge in stamp duty payable on buy-to-let purchases from April last year, together with a staggered reduction in the tax relief they can claim from April 2017.


The RLA recently calculated that around two-thirds of individual landlords are only liable for the basic rate of income tax, based on government data, which the trade association insists challenges the myth that landlords have large incomes and so can cope with tax hikes.  

Government figures reveal that of the just over 1.9 million unincorporated individual landlords returning a self-assessment tax return, two-thirds were in the basic rate bracket, 30% were in the higher rate band and 4% paid the additional rate.

The figures came after David Miles, a former member of the Bank of England’s Monetary Policy Committee, recently warned that tax rises targeting landlords could end up hurting tenants.

According to Peter Armistead, managing director of Armistead Property, although the government is trying to curb the buy-to-let market, property investment is robust in the long term.

Armistead said: “It is estimated that two million Britons are now private landlords collectively renting out five million properties. With rising demand for rental property and a growing shortage of accommodation, the buy-to-let market will continue give a good return on investment.

“The good news for landlords is that while the new tax rules are challenging for most landlords, rising asset values and rental income will go a long way to protect profits.

“Landlords have plenty of options available that will help offset the increased taxation.  The first thing landlords should do is carry out a serious portfolio review and work out how the tax changes and tougher mortgage lending will affect them and what options there are to save, or make more money.  For example, mortgaging to get a better deal; renovating some old stock - these costs will be tax deductible; selling some properties; or increasing the rent.

“Landlords need to think outside the box and ask themselves questions like can I buy with cash or with far less leverage?; should I incorporate?; can I change a house into an HMO and increase the rental income?; can I get planning on an existing property to increase its value?; or can I add an extension, or convert the cellar?”

Armistead has put together some options that landlords can consider to protect their profits:

Review your properties and see if you can get planning on an existing property to increase its value, by adding an extension, or converting the cellars?

If you have a one bedroomed property, can you make it into a small two bedroomed property?

If you lack building skills/knowledge, but have equity or cash may be partnering with someone more skilled in building/renovation work would be profitable.

Consider changing a house into an HMO and increase the rental income.

There is a real lack of shortage of properties right now and prices are at a record high so consider selling some stock.

The tax changes don’t affect limited companies. Consider setting up a limited company and using this structure to hold your properties

Are you an active or passive investor?  Passive investors will get hit hardest by the changes. May be active investors can find deals for other investors and create income streams there.

It will become far more important to buy property below market value. You can’t just buy a £1 of property for a £1 anymore. Buying with a built-in discount will help ensure your investment is just that (ie an investment)

Consider other specialist areas of property investment which compliment traditional BTL.  For example, can you manage properties for other landlords and charge a fee for that service?  Can you sack your lettings agent and do the job yourself or use a cheaper online lettings agent?

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