Please Note: This Article is 7 years old. This increases the likelihood that some or all of it's content is now outdated.

Now that some time has passed since Chancellor Osborne stood to announce his radical Summer Budget, it’s perhaps time to reflect on the key implications for landlords.

Not for many years has a budget held so many changes for the rental housing sector, so here is a round-up of the key policy changes affecting landlords.

Buy to let has boomed, both pre and post the recession; there is no doubt about that. On the one hand the government has been pleased about that, because private landlords have been instrumental in investing in much needed housing to meet rapidly rising tenant demand.

On the other hand, many argue, this landlord bonanza has added to the problem, as more and more demand for private rentals has contributed to rising property prices, which in turn have priced out those first time buyers, which then led to even greater demand for tenancies.

The Treasury and the Bank of England have become increasingly concerned about the amount of debt now outstanding for buy to let mortgages (£2bn) which, given another downturn, or a property price crash, could once again destabilise the banking system. Additionally, the government must be mindful of much anti-landlord sentiment, and a perception that “favoured group” status has been allowed to develop for landlords.

Hence the Chancellor has moved to cool the euphoria and done what he has called “rebalancing” and “levelling the playing field” between renting and owning. Private landlords will not welcome these changes but they should be careful not to overreact as most are proportionate and will be introduced gradually.

Through this budget George Osborne is sending out a clear message that he wants to halt, or at least slow down, the growth of the buy-to-let market, and this will be done through the tax system.

The reduced tax relief for higher earner landlords, coupled with an increasing amount of red tape, making the management of rentals more labour intensive, is bound to make buy to let less attractive, and could even lead to a mini-exodus from the rentals market by some investors.

Even those landlords who are lower rate taxpayers (remember rental income can be shared by spouses) will feel the effects of removing the 10 percent wear and tear allowance next April.

Although it will still be possible to claim tax relief on money that’s actually spent in the tax year, it still seems unfair that there is no tax relief when furnishing rental properties in the first place, but only when items are replaced. Now every item will have to be accounted for and claimed for.

Social landlords too won’t be too pleased about the changes which will put them under pressure to cope with reducing rents, at the same time as rising costs, as the chancellor attempts to address a move to a lower benefit higher wage economy.

Buy-to-let landlord mortgage relief is cut

Mortgage interest tax relief will no longer be claimable against rental income by those wealthier taxpayers in the high (40%) and higher (45%) tax bands. This change, to be introduced from April 2017, will have a significant impact on the profitability of buy to let investments for the better off.

Experts are warning that the increase in costs will be passed on in the form of higher rents but this remains to be seen as tenants in some locations are already stretched to the limit, with rents up to 50% of their earnings. ,

Inheritance tax threshold to be increased to £1m

One little bit of good news for the wealthy, and most landlords will fall into this category eventually, is that it will be possible to pass on £1m to the next generation, though this will mean juggling a combination of the family home and other assets.

Currently, Inheritance Tax is charged at 40% on estates over the tax-free allowance of £325,000 per person. Married couples and civil partners can pass any unused allowance on to one another.

From April 2017, each individual will be offered a family home allowance so they can pass their home on to their children or grandchildren tax-free after their death. This will be phased in from 2017-18.

The family home allowance will be added to the existing £325,000 Inheritance Tax threshold, meaning the total tax-free allowance for a surviving spouse or civil partner will be up to £1 million in 2020-21.

The allowance will be gradually withdrawn for estates worth more than £2 million.

The 10% wear and tear allowance goes

The 10% annual tax free allowance given by HMRC against rental profits is to be abolished in favour of an allowance against actual spending. Landlords will now have to show they have improved or maintained their rental property before they can deduct the costs from their taxed profits.

Working-age benefits to be frozen for four years

The freeze means that Local Housing Allowance (LHA), which is effectively housing benefit for people renting from private landlords, will fall further behind inflation as the chancellor seeks to stop the housing benefit bill soaring with increasing rents.

Small company and investment income

Some property investors do this through a limited company, and like stock market investors, they may receive taxable dividend income, unless their stock investments are in a tax shelter like an ISA.

Currently all UK dividends are paid with a notional 10% tax credit, so for every £1,000 of dividend income received it is assumed that £111 in basic rate tax has already been paid (the total dividend is therefore £1,111). This is why none and basic rate tax payers have no tax liability on dividends received, only higher rate payers pay tax on dividends. Now the tax credit is being scrapped, so in future all dividend income will be treated as gross (i.e. untaxed) income.

After the changes all taxpayers will have a tax-free dividend allowance of £5,000 a year. After that, the rate of tax payable on dividends will depend upon the investor’s other taxable income. Where dividend income takes an individual from one band into the next, they will pay the higher dividend rate on that portion of income.

Corporation Tax will be cut to 19% in 2017 and 18% in 2020

One piece of good news for company owners is the reduction in the main rate of Corporation Tax, already cut from 28% in 2010 to 20%, will now fall further, from 20% to 19% in 2017, and then to 18% in 2020, benefiting over a million businesses.

The Benefit Cap will be lowered to £23,000 in London and £20,000 outside

The total amount a family will be able to receive in benefits per year will be reduced from the £26,000 cap at present, to £20,000, or £23,000 in London. This will affect those private and social landlords with tenants on Housing Benefit, though the loss of income is on a sliding scale and will be minimised for those tenants willing to work longer hours. Landlords are concerned that the changes will lead to increased arrears and experts are predicting that many parts of the south-east will become unaffordable for large families.

Housing benefit will be abolished for under-21s

From April 2017 18 to 21 year olds will no longer have a right to housing benefit payments, though there will be some exceptions, for example the vulnerable, those unable to return to the family home or young people in work for six months prior to making a claim.

Social housing rents will fall by 1% per year for four years

Social landlords will be forced to reduce rents by 1% a year for four years after the Chancellor attacked what he called “staggering” rises in the social housing sector. The reduction could see housing associations’ rental income fall by 15%.

Social tenants on higher earnings will pay full market rents

High earning social housing tenants, earning more than £30,000 (£40,000 in London), will see their rents increased to full market rates. Housing associations that do not know how much their tenants earn will now have to find out.

The Summer Budget of 2015 is likely to be remembered for some time as a watershed in the fortunes of both landlords and tenants.

Please Note: This Article is 7 years old. This increases the likelihood that some or all of it's content is now outdated.


  1. You\’ve really misunderstood the proposed changes in the misleadingly termed \’tax relief.\’ In fact, all landlords with mortgages will be adversely affected. Personally, I face a scenario whereby if interest rates rise by 3% I will pay £90,000 more per year. At the same time my actual income will drop from £50,000pa now, to £5,000 pa. but HMRC will calculate my income as the £50,000 plus the extra £45,000 I will be paying to my mortgage company. I will then be taxed on an imaginary income of £95,000, even though my actual income will be £5,000. I will be having to find tens of thousands of pounds every year to pay in tax, and also will have to find money to live on, as I will not be entitled to tax credits etc. on my low actual income of £5,000, because black is now white and I will be deemed to be receiving money which in fact I am paying out! It\’s taking quite a few people a long time to figure this out. Take a look on the property118 website, where there are a lot of angry and worried landlords – you need to go a few pages into the thread as initially we were as confused as the person who wrote the above article is.

  2. \”Mortgage interest tax relief will no longer be claimable against rental income by those wealthier taxpayers in the high (40%) and higher (45%) tax bands. This change, to be introduced from April 2017, will have a significant impact on the profitability of buy to let investments for the better off\”

    Mortgage interest will still be claimable, but the tax relief will be restricted to the basic rate.

    The amount of interest that can be deducted from profits will reduce to 75% from 6 April 2017, to 50% from 6 April 2018, to 25% from 6 April 2019. There will be no deduction from rental profits from 2020/21.

    On the same dates landlords who are higher rate taxpayers will be able to claim a tax reducer equal to 20% of that part of the interest which was not deducted from profits. To be specific, from 6 April 2017, a tax reducer equal to 20% of 25% of interest, from 2018/19, the reducer will be 20% of 50% of profits, in 2019/10, the reducer will be 20% of 75% of the interest and in 2020/21, the reducer will be 20% of interest.

    From 2020/21, a taxpayer will pay tax on rental profits before the deduction of interest. To the extent that rental profits, before interest, take total income above the basic rate, higher rate tax (say of 40% will be payable on those rents.)

    This could mean that a landlord who would pays 20% on rental profits in 2016/17 will pay 40% on the same profits in 2020/21.


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