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Buy to let property investors have been warned that they must plan for the budget reforms coming into play regarding mortgage tax relief.

The budget reforms announced in 2015 phase out tax relief on mortgage payments in three stages, the first of which came into force in April 2017, meaning landlords will only be able to claim back 75 per cent of finance costs when they file their returns ahead of January 2019. By April 2020, landlords will no longer be able to deduct any of their mortgage expenses from their rental income when calculating their tax obligations.

Research carried out for Kent Reliance, by BDRC Continental, suggests that one in five (19 per cent) landlords have already moved properties into a limited company, or transferred ownership to a spouse, to mitigate higher tax bills, while a further one in six (13 per cent) plan to do so in the future.

However, the research also shows that 15 per cent of landlords still don’t fully understand the implications of taking this action and could be in for a rude awakening when they file taxes for the year 2017/18.

The research also found that 53 per cent of landlords do not think they would benefit from changing to a limited company or transferring ownership. However, this varied greatly between smaller and larger scale landlords, with 58 per cent of those investors holding up to five properties not seeing a benefit, compared to just 27 per cent for those with more than 20 properties in their portfolio.

Adrian Moloney, Sales and Marketing Director at OneSavings Bank who own Kent Reliance, said: ‘Landlords have had nearly three years to understand and prepare for the changes to the tax treatment of mortgage interest. Most have risen to the challenge, but a few might have quite the shock when they come to file this year’s tax return.

‘As the tax year draws to a close, brokers can use this opportunity to engage with their clients, make sure they’re aware of the potential impact on their finances. Many landlords have sought to move to a limited company structure or transferred ownership to a spouse but it’s not a one-size-fits-all solution so it’s vital that landlords affected seek professional tax advice.’

Source: Residential Landlord

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