New rules will push 440,000 landlords into higher tax bracket

The Government’s changes to landlord taxation, which come into effect in April 2017, will impact more than 440,000 landlords, forcing them into a higher tax bracket, according to new research.

A report from the National Landlord Association (NLA) has highlighted that 22% of landlords who currently pay the basic rate of tax will be affected by the planned changes, and that all landlords ‘could be at risk of seeing their tax liability increase, regardless of their existing rate of tax’.

Once the Government changes have been fully phased in by 2021, landlords will no longer be able to deduct mortgage interest payments or other finance-related costs from their turnover before declaring their taxable income.

Mortgage interest repayments are, at present, an expense that landlords can deduct as a business cost. Other deductible expenses include insurance premiums, letting agents fees, and maintenance and property repair costs.

The NLA says that landlords in Central London (31%), the East of England (30%), and the West Midlands (28%) will be hit particularly hard, explaining that the amount by which landlords are affected will depend on their personal circumstances and whether or not they generate income from other sources.

The NLA also explains that a landlord’s tax liability is dependent on their existing annual mortgage interest payments, and outlines how the increase in tax liability depends on portfolio size, as follows:

- Single property £3,600

- 2-3 properties £8,600

- 4-5 properties £16,300

- 5-10 properties £18,200

- 11-19 properties £24,900

- 20+ properties £38,000

Following the NLA’s request to discuss the forthcoming changes, as well as the introduction of the stamp duty surcharge in April this year, with Chancellor Philip Hammond, the association hopes to meet with Financial Secretary to the Treasury, Jane Ellison.

The Financial Secretary is responsible for strategic oversight of the UK tax system including direct, indirect, business, property and personal taxation.

This latest report follows the association’s meeting with Housing and Planning Minister Gavin Barwell.

Richard Lambert, Chief Executive Officer at the NLA, said:

“When the Government announced these changes last year, it claimed they would only hit a small proportion of higher-rate tax payers. We now know that is complete tosh.

“The Government must look to amend these tax changes and minimise the impact on landlords and their tenants - something that could easily be achieved by applying the rules to only new loans written after April 2017.

“Unless this happens, landlords will face an impossible decision of whether to increase rents and cause misery for their tenants, or to sell-up, and force their tenants to find a new home”.

David Whittaker, Managing Director, Mortgages for Business, said:

“We recognise these figures and anticipate that the impact in future years will be greater again. This is why we think that landlords who choose to continue owning property personally should consider locking into the low, five-year fixed rates currently available to reduce costs wherever possible.

“Clearly landlords must seek tax advice but it is our belief that going forward, most will be better off making purchases via limited companies to mitigate both the changing tax environment and the new underwriting guidelines issued by the PRA.”


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