What tax rules apply to portfolio landlords with 4 or more properties in the UK?

Full answer

The term "portfolio landlord" is used in two related but distinct contexts in the UK: mortgage lending and tax planning. **HMRC and Section 24** HMRC does not have a formal "portfolio landlord" category, but the tax position for any landlord with multiple properties is significantly affected by Section 24 of the Finance (No. 2) Act 2015. Under Section 24 (fully phased in from April 2020): - Mortgage interest can no longer be deducted from rental income before calculating tax - Instead, a **20% tax credit** is given on finance costs - This means higher and additional rate taxpayers effectively pay tax on turnover, not profit *Example:* Annual rent £30,000, mortgage interest £20,000, other costs £5,000. - Taxable profit = £30,000 - £5,000 = **£25,000** (interest not deductible) - Tax at 40% = £10,000 less 20% credit of £4,000 = **£6,000 tax** - Without Section 24 the taxable profit would have been £5,000, tax £2,000 **Mortgage lending criteria** From 2017, the Prudential Regulation Authority (PRA) required lenders to apply enhanced underwriting standards to portfolio landlords (typically defined as **4 or more mortgaged properties**): - Lenders must assess the entire portfolio, not just the individual property - Stress tests apply at higher rates - Business plan evidence may be required - Some lenders restrict or avoid portfolio landlords entirely **Limited company consideration** Many portfolio landlords explore incorporating into a limited company: - Rental profits taxed at corporation tax rate (currently **25%**) - Interest remains fully deductible within the company - However, extraction of profits as salary or dividend attracts further personal tax - SDLT is payable on transfer of properties to the company at market value - Capital Gains Tax may apply on the transfer **Other key rules** - SDLT 3% surcharge applies on each additional residential property purchase - CGT rates on disposal: **18%** (basic rate) / **24%** (higher rate) on residential property gains above the £3,000 Annual Exempt Amount - Annual Tax on Enveloped Dwellings (ATED) applies to high-value properties held in companies

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