Landlords may come under fire in Budget 2014 if Chancellor George Osborne is looking to take some of the heat out of the housing market.
Some industry experts see cutting landlord tax breaks as one way of slowing down the housing market.
Removing tax breaks would make buying rental property less profitable for landlords and leave more homes on the market for first time buyers receiving mortgage support under Help to Buy.
One of the financial advisors concerned Osborne will attack landlords in the Budget on March 19 is
Sean McCann, personal finance specialist at NFU Mutual.
He explained: “If the Chancellor is looking to take some of the heat out of the property market and increase supply of typical first-time-buyer properties, he may look to squeeze the buy-to-let market in his next Budget.
“At the moment, mortgage interest payments on rental properties can be deducted from income along with other management expenses such as repairs, insurance and certain travel expenses, to help reduce any income tax that may be due.
“This is a very attractive tax-break for investors and makes typical rental properties – which also tend to be wanted by first-time-buyers – all the more in demand.
“The Chancellor has already made a huge commitment to first-time-buyers through schemes such as Help to Buy. Removing or reducing the tax break would be very unpopular with landlords but may help people to take their first steps on the housing ladder and ease pressure on demand for new housing stock.”
Another problem for landlords, especially in London and the South is Osborne tinkering with the higher rate tax threshold.
Figures issued by the Institute for Fiscal Studies show that although 2 million lower income earners are paying tax, a million more middle income earners are paying higher rate tax.
The institute reckons even a 1% rise in the higher rate threshold will mean anyone earning between £42,285 and £150,000 will pay extra tax at 40% because the threshold is moving at a slower rate than inflation.
If the rate had moved with inflation, the higher rate threshold would be £47,195.
“This has led to a million more people paying income tax at 40% since 2010,” said a spokesman for the institute.
The Chancellor’s juggling with tax does help lower income earners and is a hook for catching media and voter attention, but comes with a sting in the tail.