Cuts to tax benefits on commercial mortgages hit landlords

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Tax

As of April 6, there have been changes in the allowance of tax relief on commercial mortgages for buy-to-let landlords. Previously tax relief was based on the tax rate that landlords normally pay tax one, but now there is a flat rate of 20%. This means that landlords on higher tax rates of 40% or more will lose out.

In response to the changes, landlords are looking at ways to offset the increase in their tax bills. One way is to raise the rents to their tenants.

Some landlords have remortgaged their main residence and used the money to pay off some or all of their commercial mortgages on buy-to-let properties. A typical residential mortgage will cost less in interest than a commercial mortgage, so this strategy should save money.

Companies that own property are not subject to the same tax laws as individuals and will pay less tax, though there are other costs involved in setting up and running a company.

Commercial mortgages on London properties tend to be higher than outside the capital due to the higher cost of London property. London landlords may find themselves with large increases in costs due to the tax changes. Some are considering selling properties in the capital and buying cheaper ones in other regions where house prices are lower, such as the North West.

Landlords will need to recalculate the profitability of their investments following the tax changes, and then implement a plan to financially protect themselves.

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