Landlords are selling their portfolios – have they considered the tax implications!

Published on 5 June 2018

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It has been reported that landlords are selling almost 4,000 buy-to-let properties a month. The Ministry of Housing has reported its largest reduction since 1988 in privately rented homes in England with a fall by 46,000 to 4.79 million last year. Whether this is a short-term reaction or a longer-term sign of the housing market it is hard to say.

The private rental market has been hit with some significant tax changes over the last few years. Whilst only taking effect for the 2018/19 tax year onwards landlords have been aware for some time that where they have financed their portfolio through borrowing they may be restricted with the amount of tax relief available relating to their finance costs.

Furthermore, the acquisition of additional residential properties is now subject to a surcharge rate of Stamp Duty Land Tax (“SDLT”) increasing the cost to landlords in expanding their portfolios.

From speaking with landlords it would seem that many of them are taking the decision to either increase rents or sell to ensure their personal financial position is not greatly compromised. Increasing rents is seen by some as a temporary measure not mostly due to the possibility of outpricing their property in the local area

Whatever the individual’s decision, it is always important that they consider the potential tax implications. Whilst the new rules have seen an increase in their tax burden, increasing rents will do this also. Tax is payable on rental profits and therefore increasing the rent will only increase the landlords profitability.

Selling properties could result in Capital Gains Tax being payable. For some, properties within their portfolios have been held for a long time and therefore the Capital Gains Tax on the gains could be significant.

An assessment of an individual’s portfolio should be done before any decision is made. Once the properties are sold, will any alternative investments generate the same yield? If the decision to sell is still appropriate then landlords should first look at properties that have previously been their home or have a smaller gain to minimise their tax cost.

Whatever the outcome, it is important that you seek professional advice.

To learn more, please feel free to drop Jo an email here, or call +44 (0)330 124 1399.

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