Help is at hand for buy-to-let landlords struggling with debt 17th June 2013

Nick Payne, Senior Insolvency Practitioner for Payplan – one of the UK’s largest free-to-client debt management companies – talks about help for buy-to-let landlords struggling with debt.

The number of buy-to-let landlords is significantly increasing. It’s easy to see why as house prices are low there is high demand for rental property and some lenders have launched new mortgage products aimed at buy-to-let landlords. However, as buying property is a major financial commitment it is important to consider the likely costs and tax implications.

There are significant costs associated with buying a property. It is tempting to take out loans and credit cards to pay for costs such as a deposit, stamp duty and mortgage arrangement fees, however if you do this you need to ensure you can make all your debt repayments. You will also need to consider whether there is demand for rental property in your area as if the property is ever unoccupied you will still have to pay the mortgage without receiving any rental income. You don’t want to be in a situation where you need to take further credit to pay the mortgage.

There are also tax implications of owning a buy-to-let property. You must tell Her Majesty’s Revenue and Customs that you own a buy-to-let property and you will need to complete a tax return every year. You must also keep a record of your buy-to-let income and expenses for six years. On your tax return you will need to declare any rental income and then deduct any expenses. Expenses may include the interest on your mortgage payments, maintenance costs and letting agency fees. You will pay tax on the profit at your normal Income Tax Rate.

You may also have to pay Capital Gains Tax when you sell a buy-to-let property for an amount greater than you bought it. This will need to be declared on your tax return. Capital Gains Tax is charged at 18 per cent if you are a basic rate tax payer and 28 per cent if you are a higher rate tax payer. However, you will receive an annual Capital Gains Tax Free Allowance of around £10,000.

If you are struggling to pay all your financial commitments such as your mortgages, loans and credit cards, it is very important to seek advice as soon as you think you are going to be in difficulties. If you wait until you miss payments, then it will lead to more interest and charges being added, which will increase the amount you owe. It is naturally difficult to admit you are having difficulties and to seek help, however by doing this it could avoid being in arrears with your mortgage and the mortgage lender possibly taking steps to repossess your property. This could lead to being forced into bankruptcy, which may mean the properties are sold against your will. The Council of Mortgage Lenders states that one in five repossessions is a buy-to-let property.

By seeking help early, it is very unlikely you will be forced into bankruptcy. Instead other options such as an Individual Voluntary Arrangement (IVA) or Debt Management Plan (DMP) will allow you to reduce your debt payments to a level you can afford while protecting any properties and other assets.

In an IVA interest and charges would no longer be added to your debts and you would be allowed to pay what you can afford, normally over a five year period. After this time, the remainder of your loans and credit cards will be written off.

If you feel you are struggling, I would recommend seeking free, confidential no-obligations debt advice at the earliest opportunity. You don’t have to proceed with any of the options discussed, however by seeking advice you will be better informed of the solutions available in case you do need to miss or reduce your debt payments.”