Nearly half of landlords plan on making changes in response to buy-to-let crackdown

According to a new survey by mydeposits, 44% of landlords are planning to make changes to their present circumstances in direct response to tax changes imposed on the sector over the last 18 months.

Since April 2016, three major tax changes have impacted landlords. Second home buyers have had to pay a 3% stamp duty surcharge, increasing tax on a £300,000 property from £5,000 to £14,000.

This was followed by the abolition of landlords’ ability to claim a 10% tax break for “wear and tear”, only letting them deduct the costs they incur.

In a further blow, changes to mortgage interest tax relief were brought in from April, meaning landlords can only offset 75% of their mortgage interest against their profits.

This will fall to 50% in 2018, 25% in 2019 and to zero by 2020 when it will be replaced by a 20% tax credit.

Mydeposits said that the vast majority of landlords are individuals who own one or two properties and use buy-to-let as a part-time income supplement, they are less likely to keep tabs on legislative changes.

Worryingly, 26% of respondents said they were unaware of changes affecting mortgage interest tax relief and a further 23% did not know about the additional 3% stamp duty payable on buy-to-let and second home purchases.

While 21% of landlords said the changes will not affect their buy-to-let business, 25% indicated they will need to increase rents to tenants. A further 10% plan to sell up altogether and 9% said they will switch from using a managed service through a letting agent to self-managing in order to reduce outgoings.

Although growing numbers of landlords with several properties are now setting up limited companies to sidestep the new rules, this is unlikely to be viable for smaller landlords, some of whom it would appear will be forced to increase rents or sell up.

While nearly 50% of landlords said they have no intention of leaving the private rented sector, nearly 25% plan to sell up in the next five years.

Eddie Hooker, CEO of Hamilton Fraser, parent company to mydeposits, said: “Around 25% of those who responded were unaware of the changes to the tax regime on their existing portfolios which shows that more is needed to be done to help educate the market and help prepare landlords for the changes to their personal tax liabilities over the next few years.

“Even more poignant, however, is the suggestion that more than 50% of landlords are considering changing their behaviour to safeguard their income by either increasing rents, turning to self-management or even selling up completely.

“With all the well-meaning efforts that are being made in the market to make the whole renting experience a better place for both landlords and tenants, there is now a clear danger that supply could be restricted with the knock-on effects this may cause. The right tax planning advice and income protection strategies are absolutely crucial.”

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