A Tax Too Far for Buy-to-Let Investors

A Tax Too Far for Buy-to-Let Investors

For some months now, we have been writing about the financial dangers facing the buy-to-let industry.

Now, increasing numbers of commentators have woken up to the issues.

These threats to the livelihood of investors in residential property have come from the introduction of heavy taxation by both the UK and Scottish Governments.

R&T Property Solutions are in the business of acquiring all kinds of property with a view to long-term investment.

So if you believe that now, as the Westminster and Holyrood polices begin to bite, it is time to sell up your portfolio and seek pastures new for your investment capital, then we can help.

We are based in Glasgow and have purchased property all over Scotland.

If you are still undecided about the future, perhaps the following illustration may help:

The example, from Money Supermarket, provides a full explanation of the tax situation which applies to landlords across the UK. In Scotland, however, investors face an even greater challenge.

Money Supermarket wrote: At the moment, landlords can claim tax relief on their mortgage interest payments. In other words, they can offset the cost of the mortgage interest from the rental income when they calculate their profits.

So, if a landlord collects rental income of £10,000 a year, but pays mortgage interest of £9,000, the profit is the difference between the two, or £1,000.

Landlords pay tax on their profits according to their income tax band. So, in this simplified example, a basic-rate taxpayer would pay 20% tax on £1,000, or £200, and keep £800.

The tax bill for a 40% taxpayer would be £400, leaving £600, or £450 for a taxpayer at the 45% additional rate, leaving £550.

But this situation won’t last for much longer. In his Summer Budget, George Osborne announced that landlords would no longer be able to deduct all their mortgage interest when they work out their profits.

Instead, mortgage interest tax relief will gradually be cut back to 20% between 2017 and 2020.

So, our landlord with rental income of £10,000 and £9,000 of mortgage interest to pay will in future have to pay tax on the full amount, less a 20% credit on the mortgage interest.

The tax bill for a higher rate taxpayer would therefore work out at £4,000 (40% of £10,000 profit) minus £1,800 (20% of £9,000 interest), which equals £2,200, up from £400 under the current tax regime.

That’s a whopping increase of £1,800.

A landlord who pays 45% tax could expect a tax bill of £2,700, compared with £450.

Meanwhile, the Scottish Government has announced that a new tax supplement will be payable on additional residential properties costing £40,000 or more.

This extra 3% will apply to the whole of the purchase price, and will be payable on purchases of second or subsequent properties by individuals (except where the individual is replacing their main residence) and all purchases of residential property by companies and other non-natural persons.

This came into force in April and is already having an influence on property values.

R&T Property Solutions realise that for many landlords this is a tax too far and if you are one of those then we might be able to help. Particularly if your property is the subject of a regulated tenancy agreement.

We’re always on the look-out for these types of homes and do our utmost to seal the deal without causing any inconvenience or upheaval to your tenants.

We have been in business for many years, buying and selling properties in all parts of Scotland out of our Glasgow offices. During that time, we have built up a strong reputation for paying a fair price.

We also like to get things done in a hurry. So if you need fast cash for your flat or flats we can normally complete the transaction between seven and fourteen days. However, we will do our utmost to fit in with your timetable.

With regard to your tenants, our confidential service is designed to ensure they are not disturbed during the transaction.

Under normal circumstances this means we do not require internal access to view the property. Nor will we necessarily require to carry out an internal survey.

We are also interested in buying some properties which display structural defects. These sort of buildings might struggle to attract a mortgage and could prove very difficult to sell.

Of course we are very keen on normal, unoccupied portfolios and regardless of the type of property you want to sell we can conclude the sale very quickly, if you so desire, often without the need for a Home Report.

So, if you feel that Westminster and Holyrood have positioned you between a rock and a hard place then contact our team of experts right away. We will give you the best advice, even if you don’t eventually do business with us.

But if you do, and you use one of the solicitors on our panel, we might be in a position to pay your fees.