Any changes to the Tax Regime?

Landlords will be glad they have not been dealt any new blows in the Spring Budget - but unfortunately the Chancellor will not be reversing the additional stamp duty charge or the mortgage interest tax relief changes expected to come into effect in April.

Currently landlords are able to deduct all their mortgage interest (and other property costs like estate agents fees) from their rental income before they calculate their tax bill. But as of 6th April relief will be set at 75% and will gradually reduce until it is replaced with a flat 20% tax relief in 2020. If you have a large buy to let mortgage it's important you speak to your accountant and mortgage adviser, digest the new mortgage interest changes and make sure you've accounted for them. If you don't have a mortgage or you're a lower rate tax payer then good news; you will not be affected at all.

Think again about setting up a limited company

As a result of the imminent mortgage tax relief changes, a number of landlords have been setting up - or considering setting up - a limited company to pay less tax. This is because, unlike individuals, limited companies can still benefit from the full mortgage interest deduction as mentioned above. But the Chancellor has clearly hinted that he doesn't want landlords forming companies to dodge the tax hit, announcing in the Budget that the tax free dividend allowance for company directors will be slashed from £5,000 to £2,000 from April 2018. The dividend allowance cut will cost basic-rate taxpayers £225, higher-rate taxpayers £975 and additional-rate taxpayers £1,143.

Tax rise for the self-employed

The Chancellor also made it crystal clear he's determined to make the taxation system more equal for employed individuals, company directors and the self-employed, announcing a 1% rise in Class 4 National Insurance contributions from April 2018 and a further 1% hike from April 2019. Many are arguing that this is sensible budgeting from a Government and the differences between self-employed and employed benefits are less defined than ever before, indeed, he plans to announce more changes to reduce the gap even further, but all of that points towards thinking very carefully about whether setting up a Limited Company is the best move for you.

As an alternative, consider whether you are able to reduce your interest costs by re-mortgaging and getting an up to date rental valuation on your property. Despite the recent stress test changes in BTL calculations if you haven't done this for a while then a higher property value may result in a lower Loan to Value calculation and a better pay rate than you may have been facing.