Potential property investors are facing a tax trap, with many unaware of the forthcoming mortgage interest relief changes, a property investor has warned.

A survey by Experience Invest, which advises on investing in London property, has found that 85% of savers are unaware of the scaling back of mortgage interest relief from April despite almost all saying they would invest in bricks and mortar over other financial products.

The survey also quotes Ray Boulger, of mortgage brokers John Charcol, who warns that landlords need to be aware of the new way their property income will be taxed from April, particularly highlighting that the changes could push them into the higher tax bracket.

This is important if they are claiming child benefit as any recipient of the child support earning more than £50,000 now must pay a tax charge to HMRC. So a landlord would need to check if the new way their rental income is calculated pushes them to to earning more than £50,000. If this is the case and they are claiming child benefit, they would be charged an extra tax, meaning it may not be worth claiming the child support any more.

Boulger said: “Now is a good time for landlords to seek specialist advice as there is not a one-size-fits-all solution.

“The new way to calculate income may push lower rate tax payers into the 40% tax bracket.

“There will be a substantial effect on landlords who receive child benefits – especially those who have more than one child – and for those who will find themselves in the 45% tax bracket.

“For new purchases, setting up as a limited company is one option, as properties held in a limited company structure still qualify for tax deductible mortgage interest rates.

“However, the impact of Capital Gains Tax and Stamp Duty Land Tax will often mean it is not worth switching properties already owned to a limited company structure.”