Recent changes to buy to let tax and more legal responsibilities for landlords mean investing in property may not be as profitable as in the past.

Landlords should think carefully before they tie up money in a rental home and should ensure they understand how the finances work.

If you are a new landlord thinking about going into buy to let or a more seasoned investor tempted to expand a property portfolio, here are some points to bear in mind:


More changes on the way in Autumn statement 2016

Communities secretary Sajid Javid has let slip that more tax and property regulation changes may be on the way in Chancellor Philip Hammond’s Budget update on November 23.

Javid has hinted Hammond will take advantage of the platform to ‘allay concerns’, although he did not elaborate on what they might be.

Cryptically, he did add that landlords should keep an eye on Hammond’s Autumn Statement

Understand mortgage tax relief changes

A landlord campaign to overturn the way amount of tax relief landlords can claim against finance interest payments alters from April 2017.

The changes are phasing in over three years and reduce mortgage interest relief for higher and additional rate taxpayers to the basic rate of tax (20%)

Calculating tax on profits changes at the same time. Instead of deducting mortgage interest from rental income as a business expense, investors must subtract business expenses from rents and then offset mortgage tax relief at the right rate.

See HMRC calculation examples

Property investors pay more stamp duty

Since April 2016, property investors have had to pay enhanced stamp duty on buying a home to rent out. Typically, investors pay an extra 3% tax than other homebuyers.

Stamp duty for investors starts at 3% on a home worth £40,000 and rises in bands from there.

See stamp duty rates

Right to rent checks

Landlords who fail to carry out right to rent checks on tenants could face fines of up to £3,000 or even jail.

The aim is to identify illegal immigrants who do not have the right to live in the UK.

The check must be carried out on new tenants and those renewing tenancy agreements

More about right to rent

Buy to let mortgages tougher to source

Most buy to let mortgage lenders have tightened controls concerning mortgage affordability in recent weeks following intervention by the Bank of England.

The result is mortgages are harder to come by even though buy to let is holding up well after Brexit.

Typically, landlords need more rent cover to prove the income generated from a buy to let home is enough to cover the mortgage and other expenses. Increasing rent cover also means loan-to-values are likely to suffer, leaving landlords to find larger cash deposits to buy property

Councils tighten regulation

Rent Smart Wales has started from November 1, 2016, demanding that all property investors renting out buy to let homes in Wales should hold a licence.

The licence is for landlords living anywhere in the world who have buy to let homes in Wales, not just for landlords living in Wales.

The government is also encouraging local authorities across the country to start licensing schemes to tackle poor conditions, such as overcrowding, and rip-off landlords.

Wear and tear allowance goes

From April 2016, landlords have lost the old 10% wear and tear allowance for furnished properties in favour of a new replacement relief for white goods, furniture and furnishings.

The effect is instead of claiming regardless of spending, landlords can only claim for like-for-like replacements.