Life can be expensive these days. The list of bills families have to pay is a long one and it soon adds up; there’s the mortgage, council tax, food and energy bills for starters. And then there are often credit card bills, personal loans, transport costs, holidays and perhaps school fees too.

So, if your children, partner or other relatives depend on your income to cover the cost of paying the mortgage, then it makes financial sense to think about the protection and peace of mind that a policy could provide. Being able to claim on a policy could mean the difference between your family struggling to make ends meet and being financially secure. Despite this, many of us simply don’t have any protection policies in place, which is sometimes hard to grasp when you think how vulnerable we all are to ill-health and accidents.

YOUR POLICY OPTIONS

There are various kinds of policies to choose from. Term insurance pays out when the policyholder dies within a set period of time. Term policies come in different forms, such as level term insurance, where the amount of cover remains constant throughout the policy. Decreasing term insurance, where the amount paid out reduces over the term, is often taken out alongside a repayment mortgage, with the sum assured reducing along with the outstanding mortgage debt.

Whole-of-life policies provide cover that lasts a lifetime. This type of policy doesn’t normally have an end date, so premiums are generally paid until you die, at which point the policy will pay out (sometimes premiums end at a certain age, but the cover continues until death).

Some families might need the security of a regular income in the event of the death of a breadwinner; a family income policy which provides a monthly tax-free payment until the end of the agreed term is a good way of securing this.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

The last few years have been a boom time for buy-to-let landlords, with rental properties in high demand.

However, in 2015 the then Chancellor, George Osborne, introduced measures that he hoped would ‘level the playing field’. To deter more buy-to-let landlords from entering the market and encourage some to sell their properties, he restricted the tax concessions available on their mortgage interest payments, hoping that this would mean that more entry-level properties would be freed up for first-time buyers.

The changes start to bite

These tax changes mean that buy-to-let landlords, accustomed to claiming relief worth 40% or 45% will find their relief restricted to the basic rate of 20% once the changes are fully implemented in 2020. The tax relief that landlords of residential properties get for finance costs will be restricted to the basic rate of income tax, phased in from April 2017. This figure decreases by 25 percentage points each year until none can be accounted for in 2020-21, although a 20% tax credit will help. In addition, the 10% wear-and-tear allowance was discontinued from April; landlords can now only deduct the costs they have incurred.

This came on top of changes in Stamp Duty Land Tax (SDLT). From April 2016, anyone purchasing an additional residential property for £40,000 or more pays a surcharge of 3%. So, a landlord who bought a property for £200,000 prior to April 2016 would have paid just £1,500 SDLT. Now, a landlord purchasing the same property would see their bill rise to £7,500. Similar rules were adopted for Land and Buildings Transaction Tax in Scotland.

Effects being felt in the market place

Data from the Association of Residential Letting Agents¹ suggests landlords seeing their rental yields fall are beginning to press their tenants for higher rents to cover their costs and income shortfall. In November 2016, only 16% of agents saw landlords increasing rents, but that figure has risen to 35%, and is widely expected to rise further over the coming months. Clearly, following the recent rise in interest rates, more landlords will be endeavouring to offset their rising costs by raising rents.

In addition, lenders have introduced more stringent vetting procedures for buy-to-let mortgages where landlords already own four or more mortgaged properties. This may give rise to further changes in the dynamics of the buy-to-let market.

The Financial Conduct Authority does not regulate Commercial Buy-to-Let mortgages & Tax advice

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

¹ARLA (Association of Residential Letting Agents) Propertymark, Private Rented Sector report, August 2017

In 2015, then Chancellor George Osborne announced measures that he hoped would ‘level the playing field’ for first-time buyers by reducing the many tax concessions available to buy-to-let landlords, deterring more from entering that market and encouraging some to sell their rental properties.

Landlords accustomed to claiming relief worth 40% or 45% will find their relief restricted to the basic rate of 20% once the changes are fully implemented in 2020. In the 2017-18 tax year, the deduction from property income is being restricted to 75% of finance costs, with the remaining being available as a basic-rate reduction. In addition, the 10% wear-and-tear allowance has been revoked, meaning landlords are only able to deduct costs they have incurred.

Some landlords who foresaw their rental yields falling because of these tax changes chose to set up limited companies and to transfer their rental properties into them.

Limited company drawbacks

The main benefit of holding properties within a limited company is that profits are taxed at 19%. Limited companies aren’t affected by the restrictions that took effect from April, so mortgage interest is fully deductible against tax.

However, recent research suggests that only landlords who own four or more properties stand to gain from a limited company structure. This is in part because limited company mortgage products are only available through a small number of lenders, meaning that the rates charged are often higher than those available to personal borrowers, and more liable to change with market conditions. Plus, many lenders operate under significantly different criteria when lending to limited company borrowers.

Whilst some people have considered buying a property as an individual and then moving it into a limited company, this can have unintended tax consequences. Doing this could give rise to a major capital gains tax liability and create a problem with stamp duty.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments.

The information contained within the article is based on our current understanding of taxation and can be subject to change in future. Taxation depends on individual circumstances as well as tax law and HMRC practice which can change.