How will tax changes affect buy-to-let landlords?
Buy-to-let landlords became worried as George Osborne announced the first of his reforms to tax breaks in his July budget. The cuts come at a time when buy-to-let landlords are seemingly under fire from all directions, with some research suggesting that up to one in five could go out of business as a result of the tax changes.
What are the buy-to-let tax changes?
In a series of measures set to take effect from April 2017, landlords could see £2bn added to the collective tax bill each year as they will be eligible to claim tax reliefs of only 20% of interest payments on buy-to-let mortgages, rather than the 40% – 45% to which they have become accustomed.
In addition, the automatic right of investors in buy-to-let property to claim 10% of rental income against wear-and-tear costs will also be revoked from April 2016, with landlords set to be eligible to claim only for costs actually incurred.
Nick Leeming, chief executive of Jackson Stops & Staff, has labelled the changes a “major blow to a sector that is heavily reliant on private investors”, because landlords are effectively running a small business that would be threatened if it was loss-making.
Report on the buy-to-let sector
A report by specialist property law firm Legal Access has added to the debate surrounding the tax changes, stating that 33% of those affected believe that odds are currently stacked more in favour of tenants than landlords.
The report cites £9.9 billion as the amount currently lost as a result of rent arrears (£4.7 billion) and damage to property (£4.5 billion), equivalent to £6,600 per annum for every UK-based landlord. The sector has also been increasingly troubled by a distrust of letting agents, with 43% of landlords dropping such services in favour of a financial saving, as well as question marks over new immigration checks that are currently being trialled in the West Midlands.
Glynis Frew, managing director of Hunters Property Group, believes that the tax changes will have a major impact on the wider property landscape, stating that the changes will “discourage new landlords from entering the sector and will result in a lack of stock. This will inevitably lead to higher rents”. Fears have also been expressed that the changes could result in a flood of buy-to-lets being sold as smaller landlords could be squeezed out of the market.
Reassurance for landlords
The government has been eager to allay the fears of landlords, with Chancellor of the Exchequer George Osborne stating: “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.”
With such large tax changes coming soon, it pays to stay ahead by reviewing your accounts and assets with professional advice from a specialist landlord accountant. If you want to know more about how these changes could affect you and your taxes, then call our expert team today.
