BUY-TO-LET has been hugely popular over the past decade, buoyed by rising house prices, high tenant demand and a helpful tax regime.

But for many landlords, the environment is about to get a lot tougher as tax changes bite.

That means it may be time for a rethink.

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If you already own a rental property, or are considering becoming a landlord, this could affect the profitability of your buy-to-let.

Before you purchase a buy-to-let there are a host of costs to consider, such as solicitors’ fees, mortgage application fees, and stamp duty.

Ongoing costs include insurance and maintenance expenses.

Then, of course, there is tax: rents are taxed as income, selling a property will likely trigger capital gains tax and passing a property on to your children could result in an inheritance tax bill.

Recent tax reforms have made buy-to-let look distinctly less attractive from a tax perspective.

Landlords used to be able to automatically claim ten per cent tax relief each year on their rental income from furnished accommodation to cover ‘wear and tear’.

Since last year, landlords have only been able to claim for the costs they actually incur when they replace furniture, furnishings, appliances and kitchenware.

In the last year or so, landlords and second home owners have also faced a three per cent surcharge on top of the current stamp duty rates.

Landlords used to be able to claim tax relief on 100 per cent of mortgage interest costs at their marginal rate (40 per cent for higher-rate taxpayers; 45 per cent per cent for additional-rate taxpayers).

That meant all landlords only paid tax on the difference between their expenses and income, their profit.

That changed on 6 April 2017.

In the 2017-18 tax year landlords can only claim relief at their marginal rate on 75 per cent of mortgage interest costs.

On the remaining 25 per cent, tax relief is restricted to the basic rate of income tax of 20 per cent.

Further restrictions on tax relief will be phased in over the next three years.

When these tax changes are fully implemented (in April 2020), all landlords with mortgages will be restricted to claiming tax relief on rental income at the basic rate of income tax of 20 per cent.

Some buy-to-let businesses, especially those already on the margin of profitability, will suffer a cash loss after tax.

It may still be possible to make a profit from capital growth, though house price growth is variable and liable to capital gains tax.

There are alternatives to buy-to-let that are more liquid, tax-efficient and remove the burden of managing the property yourself – a burden that you shouldn’t underestimate.

Although most property funds invest in commercial and not residential property, they can be held within a pension or ISA. meaning in tax terms they win hands down against buy-to-let.

Some SIPPs (self-invested personal pensions) allow you to directly purchase a commercial property using your pension.

The cardinal rule of investing is to make sure your risk is well balanced.

Many of us are already heavily reliant on property.

When the Office for National Statistics last ran the numbers, it revealed that around 35 per cent of the nation’s wealth is wrapped up in homes. Investing in a buy-to-let could mean you are overexposed to property, which may not be wise as it increases the risk you are taking with your investments.

Neil McLoram works in business development at wealth management firm Brewin Dolphin, based in Newcastle.

The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin. No director, representative or employee of Brewin Dolphin accepts liability for any direct or consequential loss arising from the use of this document or its contents. Any tax allowances or thresholds mentioned are based on personal circumstances and current legislation which is subject to change. The information contained in the text is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. The value of investments can fall and you may get back less than you invested. The information is for illustrative purposes only and is not intended as investment advice.