One in five landlords who pay the basic rate of tax will be forced into a higher tax bracket from April next year as planned changes to landlord taxation come in to force.
According to the National Landlord Association, 440,000 landlords will be hit when mortgage interest relief for residential buy-to-let properties is reduced to the base income tax rate, which is 20%.
This is due to be phased in over a four-year period starting from April 2017. Landlords are currently able to claim tax relief on the top rate of tax of up to 45%.
The changes mean landlords will no longer be able to deduct mortgage interest payments or any other finance-related costs from their turnover before declaring their taxable income.
Many buy-to-let investors are now considering leaving the sector as they fear letting out a property will become far less profitable when the reforms come into force in April 2017.
All landlords could be at risk of seeing their tax liability increase regardless of their existing rate of tax, with landlords in Central London (31%), the East of England (30%), and the West Midlands (28%) particularly hit.
The amount by which landlords will be affected will depend on their personal circumstances, including whether or not they generate income from any other sources.
Landlords’ tax liability will increase depending on their existing annual mortgage interest payments and will range from £3,600 for landlords with a single property to £38,000 for landlords with 20 properties or more.
Richard Lambert, chief executive officer at the NLA, said: “When the government announced these changes last year, it claimed they would only hit a small proportion of higher-rate tax payers. We now know that is complete tosh.
“The government must look to amend these tax changes and minimise the impact on landlords and their tenants – something that could easily be achieved by applying the rules to only new loans written after April 2017.
“Unless this happens, landlords will face an impossible decision of whether to increase rents and cause misery for their tenants, or to sell-up, and force their tenants to find a new home.”
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Majority of Landlords will be forced to sell up or increase their rent. There is so much red tape and new regulations and strict rules that makes it impossible to make any profit just hassle.
In areas where people can not afford to buy a home will have to be faced with lowering even further their living standards in a smaller rental accommodation.
Young adults under the current financial burden with student loans poor job prospects and high deposit unless they have rich parents are just looking form afar like a dream.
Foreign buyers will be able to buy for cash properties making huge profits because they will be able to run from companies outside uk (like the BHS senario). That would be really great. The government will end up instead of collecting higher taxes will effectively loose out. Similarly most London properties are not owned by Londoners.
Governments never seem to learn that the more legislation they bring in the more landlords leave the business and the less homes their are to rent . Not rocket science is it.
Its a good job Osborn has been thrown out as Chancellor. This last set of regulations will mean a reduction in the number of properties to rent. This will then impact on tenants as there will be less property available for rent. Where land lords are highly geared in London it will be a disaster. Hugh borrowings and only low allowances will force many to sell thus reducing further the stock available. I do not know who thought of this idea and it should be changed as soon as possible especially if the governemnt wants more preperty to be available for rental. If this does not happen then there will be a terrible shortage. Without tax allowances renting is a nonsence. Most land lords rely on the capital appreciation and have to wait almost 20 years before this is achieved. It is not an instant profit in the sector. I speak from experience as I have been renting for almost 40 years and for over 30 of these we never took out a penny of the money. All we did is kept paying back the bank for the loans. I hope the government read this and change their views.