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What’s new for Buy-to-Let landlords in 2018?

22 February 2018

There are a lot of changes coming in for buy-to-let landlords this year, and keeping on top of them all is crucial to ensure happy tenants and a healthy business. Here are the key issues to be aware of.

Limited company versus going alone

Once you’ve decided you’re going to invest in a buy-to-let property, you need to decide whether you’re going to purchase it as an individual, or set up a limited company instead.

Operating as a limited company is costly upfront – it means paying Stamp Duty Land Tax and possibly Capital Gains Tax, as well as the administration that comes with setting the company up and opening new bank accounts. Mortgages can also be more expensive this way.

But operating as a limited company means a landlord can declare their mortgage interest payments as a business expense, avoiding the new tax burden on individual landlords. It’s advised that any landlord going down this route gets professional advice on their unique tax position first, to be made aware of any tax savings they may be able to get.

The compulsory ombudsman scheme

From this year, landlords will be required to register with an ombudsman scheme to resolve any disputes involving their tenants. The government hopes this will give tenants greater powers to challenge their landlords in cases where they think they’re being unreasonable.

New energy standards

A property’s Energy Performance Certificates, which measure its energy-efficiency, must now be at least an E. This new requirement initially applies to new tenancies and contract renewals, but will be extended to all tenancies by 2020. And the penalty for not doing so is a fine of up to £5,000. 

Portfolio information

Landlords with four or more properties now need to show full financial information for every property in their portfolio when applying for finance, when, previously, it was possible to just show top-line profits. This could lengthen the amount of time it takes to secure loans, and it could see landlords with heavy mortgages getting turned down.

The end of mortgage interest tax relief

Until last year, landlords were able to deduct mortgage interest from their rental property before calculating their tax liability. But they can no longer do this, due to measures introduced in April 2017 to gradually slash this relief.

Since April 2017, the change to buy-to-let tax relief has been phased in, which could mean some landlords – those on higher incomes who pay higher taxes – will lose out on some of their profits. For the 2017/18 tax year, landlords can now only claim 75% of their finance costs at the higher rate, with 25% deducted at the basic rate. For 2018/19, this will fall to 50%. Tax relief will eventually be a flat rate of 20%, but changes won’t be fully in place, until 2020.

Longer tenancy agreements

It’s vital for landlords to make sure they have formal tenancy agreements – something that Lyons Wilson is experienced in drafting and reviewing. The government has announced that it will be looking into ways to incentivise landlords to offer 12-month tenancies as an option for those who want them.

This means more security for both parties, and fewer costs incurred by the arduous process of finding new tenants every six months, or even more frequently. Obviously, it’s more of a nuisance than a convenience if either the landlord or tenant is unhappy with the relationship for unforeseen reasons, or if the landlord needs to increase the rent on their property.

To find out how Lyons Wilson Solicitors in Manchester could help smooth your next buy-to-let property transaction, simply fill in the ‘call-back’ form or call us on 0161 830 7756 for a free, no obligation consultation.

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