Breaking News: a radical budget brings in big changes for landlords & tenants.
Chancellor George Osborne has announced large working age benefits cuts to be offset by a new national living wage in his budget speech Wednesday.
Buy to let landlords will be affected by a change that will restrict mortgage interest relief to the 20 per cent basic rate of income tax band from 2017, to be phased in over four years.
Mr Osborne said that buy-to-let landlords “have an advantage”, as they can offset mortgage interest payments against income. He said that has contributed to the rapid growth of buy-to-let mortgages and he wants to “level the playing field”.
Genevieve Moore, partner at accountants Blick Rothenberg told the Financial Times:
“This is likely to impact many of Britain’s workers who have saved hard and invested in property to supplement their retirement.
“We could see a flood of buy-to-lets being sold as the squeezed middle bow out of rental market.”
Housing benefit and tax credits specifically will be targeted as the Chancellor has halved the income threshold above which these benefits are progressively withdrawn, and he will significantly increase their rate of withdrawal.
18-21-year-olds will not be entitled to claim housing benefit automatically, with a new “earn to learn” obligation and an annual household benefit cap will be reduced from £26,000 to £23,000 in London and to £20,000 in the rest of Britain.
Other measures which may affect landlords include:
- Rent-a-room relief scheme which has not increase for 18 years is to rise from £4250 to £7,500
- The inheritance tax threshold including a family home is lifted to £1m
- Tax credits and Universal Credit to be restricted to two children, affecting those born after April 2017.
- Income threshold for tax credits to be reduced from £6,420 to £3,850
- Working-age benefits to be frozen for four years – including tax credits and local housing allowance, but maternity pay and disability benefits exempted
- Rents in social housing sector will be reduced by 1% a year for the next four years
- Higher-income households in social housing will be required to pay rents at the market rate
- Introduction of a new national living wage for all workers aged over 25, starting at £7.20 an hour from April 2016 and set to reach £9 by 2020 – giving an estimated 2.5 million people an average £5,000 rise over five years
- Inheritance tax threshold will be increased to £1m from 2017
- Personal allowance, at which people start paying tax, to rise to £11,000 next year
- The point at which people start paying income tax at 40p to rise from £42,385 to £43,000 next year
- Corporation tax will be cut to 19pc in 2017 and 18pc by 2020
- National Insurance employment allowance for small firms to be increased by 50% to £3,000 from 2016
- Dividend tax credit to be replaced with a new tax-free allowance of £5,000 on dividend income. Rates of dividend tax to be set at 7.5%, 32.5% and 38.1%.
Budget analysis report soon from www.taxcafe.co.uk
— LandlordZONE® (@LandlordZONE) July 8, 2015