Protecting the future

For most people, their properties are their most valuable asset. And for anyone with children, the consequence of not having made provision for estate planning may be devastating. Passing on rental property to loved ones, however, can be a complicated process filled with many potential pitfalls. But by taking appropriate steps to mitigate your inheritance tax (IHT) bill as well as avoiding capital gains tax (CGT), you can optimise the value of your property and protect the future income for your family.

Usually, if you want to transfer a buy to let (BTL) property to your children, CGT liability would apply because HMRC states that the parent received the market value of the property - even if the property was handed down for free. That CGT will be based on current market value, minus purchase price, minus capitalised refurbishment costs.

Currently, the rate of capital gains tax to be paid on BTL properties – after using the £11,700 CGT annual allowance – is 18% for basic rate taxpayers and 28% for higher rate taxpayers.

Landlords open to expansion via Limited Company route

The latest property survey found that there is still a significant appetite to invest in property, despite most of those surveyed understanding that they would be affected by the changes to income tax liability. Around 75% of those looking to buy said that buy-to-let would be for part of the mix, while houses in multiple occupation (HMOs) were also flagged as an option.

Those surveyed also stated they were going to look very seriously at setting up a limited company for any further expansion.

What’s really happening is the market is getting far more specialised. Portfolio landlords are coming to the fore, as fewer people are getting into buy-to-let as an alternative pension strategy. It seems the “serious” landlord is very open to expansion particularly in the (HMO) sector.

In for the long term

The Mortgage Lender has published a report which reveals that 84% of landlords say they are committed to the buy-to-let market and looking to maintain or increase the number of properties in their portfolios over the next 12 months.

The specialist lender’s report named The Landlord Experience, includes research among a panel of residential landlords, it reveals half of all landlords agree tax changes have reduced the number of private landlords.

Meanwhile, just one in eight landlords is seeking out specialist tax advice to help them manage their portfolios while only four in 10 are using a specialist buy-to-let mortgage broker when organising their borrowing.

Limited company mortgages gain more ground

55% of landlords surveyed will use limited companies for future property purchases, which is more than double the 24% of landlords who intend to buy as an individual.

In the final quarter of 2018 around 44% of landlords planned to use limited companies for purchases and in Q1 of 2019 the number was 53%.

Limited companies are most popular among landlords with a portfolio of 11 or more properties with 71% using them for purchases. It is still the dominant option for those with portfolios of 10 or fewer with 51% saying they will go down the limited company route to buy their next property compared with only 27% buying as individuals.