Property Investment: Beating the Tax Hikes


Last year saw a number of tax hikes unveiled which will hit the property investment sector. More recently, this year’s budget put significantly less focus on reigning in landlords, but still excluded them from a significant cut to Capital Gains Tax. The various changes are due to be rolled out out in the years leading up to 2020, and could seriously reduce the returns that some buy-to-let investments bring in and even make some outright unprofitable. There are some steps that can be taken to minimise the impact of these changes, however. Notably, landlords may want to consider the following:

Set Up a Company

Many of the tax changes which are likely to have the biggest impact are aimed at individual investor-landlords rather than at companies. As such, by setting up a limited company and investing through that you could effectively dodge much of the worst of the storm, and also gain more extensive rights for offsetting costs against rental income for tax purposes. You would also benefit from cuts to corporation tax, which is dropping to 19% next year and then to 18% in 2020. However, you should also be aware that the only way for rental income to be paid out into your own pocket is by receiving dividends as a director. As of next April, you will be entitled to £5,000 tax-free in this way, with the remainder being taxed at 7.5% for basic rate taxpayers and 32.5% for higher rate taxpayers. You should always be aware that having a limited company is more likely to require an accountant than holding your investments as an individual. While many landlords, especially higher-rate taxpayers, would be better off for forming a limited company, it is best to give the matter careful thought to be sure that it will be beneficial in your circumstances.

Switching Mortgage

This is not strictly a way to bypass the tax changes, but it could potentially be an important way to offset them and keep your profits as high as possible. If your mortgage has reached, or is approaching, the end of its initial period then the impact on your profits of paying higher interest rates could be significant. This will be further accentuated in coming years with the rollout of one of the key tax hikes, a reduction in mortgage rate relief, and with interest rates forecast to begin rising next year. As such, it may well prove very prudent to remortgage now while interest rates remain at their historic lows, securing yourself a low rate for a few years to come.

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