Buy-to-let deal exploits tax relief tapering
The first buy-to-let lender to openly try to defuse what a contractors’ IFA has called a financial “ticking-time bomb” has emerged.
Leeds Building Society (LBS) has specifically structured its new two-year fixed rate deal to ‘charge minimal interest at a time when tax relief is going to be less favourable.’
In line with the lender’s comments, deductions that landlords can legally make on mortgage interest will fall from 50% (2018) to 25% in 2019, before being capped at just 20% in 2020.
The thinking at LBS seems to be that, in return for paying a big fee (£2,499) up-front, property investors will prefer a low interest rate when their ability to deduct it is tapered off.
So the “underlying economics of buy-to-let are changing,” Leeds Building Society’s Jaedon Green told Mortgage Introducer, referring to the Treasury’s tax relief curbs. He added:
“High fee products enable landlords to front load funding costs and maximise use of existing tax relief, while minimising the interest payable in future years, when tax relief is less favourable.”
In its guidance on the relief clawback, announced at Summer Budget 2015, the lender has pointed out that limited company buy-to-let investors are unaffected, as opposed to landlords operating as individuals, who are affected.
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