Private landlords are being advised to adopt a more professional approach when it comes to managing their property portfolio, after new research revealed that 44% of buy-to-let investors are planning to make changes to their existing circumstances in direct response to tax changes over the past 18 months, according to a new survey
Tax changes imposed on landlords include the phasing out of mortgage interest relief, the scrapping of the 10% ‘wear and tear’ allowance for furnished homes and the introduction of the 3% stamp duty surcharge for additional properties.
The research, conducted by mydeposits, also found that just over a quarter - 26% - of private landlords were unaware of changes affecting mortgage interest tax relief and a further 23% did not know about the additional 3% stamp duty payable on buy-to-let and second home purchases.
This largely reflects the fact that the vast majority of landlords are individuals who own one or two properties and use buy-to-let as a part-time income supplement, rather than a full-time business, meaning they could be less likely to monitor legislative changes, the study suggests.
A breakdown of respondents to the survey reveals that 86% of landlords own between one and four properties, with a further 8% having between 5-10 properties.
While 21% of landlords said the changes will not affect their buy-to-let business, the vast majority of those surveyed insisted that they plan to make changes to help cope with tax hikes.
A quarter indicated they will need to increase rents to tenants, 10% plan to sell up altogether, and 9% said they will switch from using a managed service through a letting agent to self-managing in order to reduce outgoings.
Tony Gimple, Founding Director of Less Tax for Landlords says landlords have four options: sell up; do nothing (which will be a default decision for many); set up a limited company, which is unlikely to be viable for smaller landlords due to remortgage costs and lending inflexibility, or hold property in a “Hybrid Structure”, Gimple views as truly running a portfolio as a property business, whilst at the same time reducing tax leakage to the legal minimum.
He commented: “Landlords should be running their buy-to-let portfolio as a business regardless of tax changes, and those forced out of the market will be the ones who are too highly geared with too little yield.
“Many landlords are trying to do everything themselves and often following unreliable or out of context information, whereas once they are professionally educated on what their options are, many choose to remain landlords and go on to prosper.”
The results of this survey are particularly interesting for the short to medium future of the private rented sector, according to Eddie Hooker, CEO of Hamilton Fraser, parent company to mydeposits.
Hooker said: “Around 25% of those who responded were unaware of the changes to the tax regime on their existing portfolios which shows that more is needed to be done to help educate the market and help prepare landlords for the changes to their personal tax liabilities over the next few years.
“Even more poignant however, is the suggestion that more than 50% of landlords are considering changing their behaviour to safeguard their income by either increasing rents, turning to self-management or even selling up completely.
“With all the well-meaning efforts that are being made in the market to make the whole renting experience a better place for both landlords and tenants, there is now a clear danger that supply could be restricted with the knock-on effects this may cause. The right tax planning advice and income protection strategies are absolutely crucial.”