Please Note: This Article is 5 years old. This increases the likelihood that some or all of it's content is now outdated.

In what some landlords perceive as something of a “kick in the teeth” for their hard work in providing “value for money” rental accommodation for their tenants, starting from April 2017 they will no longer be able to claim tax relief above the 20% tax band.

So landlords paying high rate or higher rate tax, which must represent a fairly large proportion of them, will no longer be able to claim tax relief on their mortgage interest payments for their buy-to-let mortgages.

As a further blow, the 10% wear and tear allowance against rental income has been removed, which means landlords will now find themselves claiming for individual items instead, but it will inevitably mean a less generous tax regime overall.

There are now estimated to be just over two million buy-to-let landlords in Britain, many of whom have used their savings to buy just one or two buy to let properties to provide retirement income. Many were said to be stunned by what the Chancellor said in his Budget.

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There’s already been talk of a mass sell-off of rental homes as buy to let landlords were left reeling after the chancellor cut their tax relief, but the alternative is widespread rent rises.

It’s perhaps not too surprising that the chancellor should bring in measures to cool the “buy to let boom” which is beginning to worry the Bank of England, with over £2bn of mortgage loans outstanding.

In addition, the public perception of the money that landlords are making has not been helped by the campaigning groups and the media presenting all landlords as either rogues or millionaires.

It is estimated the measure will cost landlords around £2bn, a tax bombshell which was largely unexpected and something that recent investors taking on large buy-to-let mortgages will not have factored into their calculations.

Perhaps the only positive to emerge from the budget as far as landlords are concerned, and this will only affect a small proportion that take in lodgers into their own homes, is the rent-a-room relief extension: homeowners will be able to receive up to £7,500 in rent from lodgers without having to pay tax, compared to the previous limit of £4,250. This change comes into effect from April next year.

One of Britain’s most controversial buy-to-let landlords, Fergus Wilson, who owns properties in Maidstone, Kent, with an empire at one point reaching nearly 1,000 homes, said:

“It will drive rents upwards to compensate. In Maidstone I have no houses available to rent. It will always be a case of supply and demand and with an ever increasing volume of tenants the price will go up. There is only one answer to the country’s problem and that is to build more houses.”

Campaigners and charity groups are delighted to see their efforts coming to fruition as the Chancellors appears to have listened to their cries that there was a need to “level playing field” between first time buyers and investors.

George Osborne said in his speech that buy-to-let landlords have a “huge advantage” over homebuyers as they can offset mortgage interest payments against their income. “And the better off the landlord, the more tax relief they get”.

Emphasising his concerns the Chancellor stated that the advantages had contributed to the rapid growth in buy-to-let properties, which now account for more than 15% of mortgages taken out this year, and had therefore caused the Bank of England to sound a warning about the market.

“So we will act. But we will act in a proportionate and gradual way, because I know that many hardworking people who’ve saved and invested in property depend on the rental income they get,” the Chancellor said.

According to the Guardian Newspaper the removal of these two tax reliefs will bring into the Treasury £225m in 2018/19, rising to £665m in 2020/21 for interest reliefs, and the 10% wear-and-tear allowance is forecast to make £205m in 2017/18, falling to around £165m in subsequent years.

Some indication of the shock and the pain to come was that share prices in mortgage lenders specialising in buy-to-let loans fell heavily after the budget speech.

Paragon Mortgages, one of the biggest specialist buy to let mortgage providers, a company which revealed recently that buy-to-let landlords had earned returns of almost 1,400% since 1996, saw its share price drop 5%.

Letting agents, which have seen their number and their incomes climb rapidly during the buy-to-let boom, could also feel the pinch.

George Spencer of letting agent Rentify told the Guardian Newspaper:

“These cuts are set to affect British landlords in a drastic way. These reliefs were hugely important for landlords in being able to offset other astronomic costs such as high street lettings agent fees, home insurance, maintenance and repairs costs, as well as council tax.”

One in five homes in Britain is now owned by private landlords and over-took the number owned by social landlords in 2013. Further, predictions have been made that the number could rise to one in three over the next twenty years. As ever with predictions, though, they don’t take unknown factors into account: tax reliefs and housing benefits cuts being prime examples.

Reductions in housing benefit payments will have a really big impact on those landlords operating in this sector of the market, and of course many tenants will be hit equally hard.

This budget will leave many landlords re-thinking strategies and tenants changing their lifestyles.

Please Note: This Article is 5 years old. This increases the likelihood that some or all of it's content is now outdated.
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2 COMMENTS

  1. This is absolute nonsense if you are suggesting that this will lead to rent rises and is poor effort from the point of view of BTL landlords. You are in a market that sets the price. This is virtually irrelevant to costs, as you can clearly see that a house price increase of 50% in 5 years has only related in rent increases of 2-3% a year.

    You have to compete on price with companies, people without mortgages (a LOT of people can invest in property without a mortgage now the budget has allowed them to access their pensions). A BTL landlord\’s costs are virtually irrelevant.

  2. erm… S.E. UK rents increased 9% over the last 12 months.
    This tax is similar to stamp duty, a tax on the property market. I suspect in a tight market the cost will be shared by tenant and landlord. Foreign cash buyers who are buyers who are buying up London will be unaffected.

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