Considerations for residential landlords

Between 2017 and 2020, tax relief on mortgage interest incurred on residential properties was restricted, and currently there is no deduction for finance costs against property income for individuals.

This has been replaced with a basic rate tax deduction. This means that there is no change to the overall taxation for anyone who is a basic rate taxpayer.

However, higher and additional rate taxpayers will only get half, or less of the tax relief they previously had.

This interest restriction does not apply to limited companies and will be a factor in determining how to structure your rental property. However, it is worth noting that mortgage rates for companies are often higher than for individual landlords, so all factors need to be considered.

If you already own a residential property (your own home) and you buy a second as an investment, you usually pay 3% extra on top of the usual Stamp Duty rates.

This additional rate also applies to companies.

You need to factor this in when buying your second property, so you know all the costs you are incurring up front.

If you are buying 6 or more residential properties in one transaction, stamp duty is calculated differently, and may end up being lower.

On disposal, residential properties attract the highest rate of Capital Gains Tax (18%/28%). The steep increase in value in many residential properties over the past years has meant that may people incur a large gain, and therefore a large tax bill on disposal.

This tax bill now needs to be paid within 60 days of completion, so again it’s key that you get advice early on to plan for this.

This is a very recent change announced by the government.

Section 21 will be scrapped which will put an end to “no-fault evictions” – so landlords will always need to provide tenants with a reason for ending the tenancy. Tenants can still end the agreement at any time, by giving 2 months’ notice.

There were additional changes in the government publication, including giving all tenants the right to request a pet in their home, and ending the use of arbitrary rent review clauses.

The government has also said they will create a new private renters’ ombudsman to enable disputes to be settled quickly at low cost and will ensure that responsible landlords can gain possession of their properties efficiently from “anti-social” tenants.

If you want to learn more contact Amy direct at amy.dedman@om.uk or visit our Property & Construction Sector Page.