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Could it be too costly for landlords to exit the BTL sector?

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An article in Tax Insider online magazine has highlighted the dilemmas faced by private UK landlords in light of recent tax relief restrictions on mortgage interest costs.

Some landlords, it says, may decide it’s cheaper to ‘sell up’, only to find that the costs of exit may prove prohibitive. 

Others may wish to sell off some of their portfolio, then make a tax-efficient move to incorporate the rest in to a property business.

What do landlords need to consider?

Streamlining a rental property business may allow the landlord to pay down some or all of the debt that generates the finance costs at the heart of the problem. 

But there are costs incurred on the property disposal that need to be considered such as:

  • a negative equity and a depressed market (in some areas, while house prices have increased, house prices in 53% of towns and cities are still below their peak 2007 values);
  • finance cancellation costs (there may be penalties to end a mortgage early and, depending on when you originally took out the BTL mortgage, there could be additional clawback costs too); and
  • capital gains tax (typically of 28%).

The author, Lee Sharpe, says that whilst one factor may be manageable on its own, it will probably be a combination of factors that will see the worst outcomes.

The full article can be read here, including an example of how a landlord could end up out of pocket on a property sale.