Landlords looking for a way out of the government’s shake-up of buy to let tax have some financial options that do not involve expensive tax advice.
Although some advisers are promoting partnerships and incorporating property businesses as ways to avoid the new mortgage interest tax relief restrictions, managing finance interest is a more straightforward option.
Taking control of how much mortgage interest is paid comes down to refinancing buy to let mortgage debt at cheaper interest rates.
Remortgaging to a cheaper rate reduces the amount of interest paid and the amount of tax relief lost.
Adjusting portfolio ownership
Another way to avoid the new tax is to look at portfolio ownership to make sure any spouses paying basic rate tax fully utilise their allowances before their partners take money from a property business.
Portfolio ownership is easily adjusted without impacting on mortgages with a declaration of trust and the filing of a Form 17 to HM Revenue and Customs (HMRC).
These transfers between spouses are also exempt from CGT.
Another option is forming a company to make any new buy to let purchases. The new mortgage interest relief rules do not apply to companies, which can continue to claim all finance interest relief at a rate of 20%.
For landlords who see the new tax rules as a signal to quit buy to let, capital gains from selling rented homes can be sheltered in a tax-incentivised investment backed by the government.
Deferring buy to let capital gains
These investments include the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS).
Each offers deferred CGT to rolled over gains at different levels of investment held for three years.
SEIS gives a 50% income tax refund on investments of up to £100,000 in the year of investment, plus shelter for gains.
Other perks include no CGT on gains in the value of shares and loss relief if the investment should fail. To qualify for the tax relief, the shares must be held for three years.
EIS operates on similar rules, but the income tax refund is set at 30% and maximum funding at £1 million.