Tax changes could cost Landlords an additional £470m

Big changes are coming and for landlords of traditional investments such as Buy to Let, this is not a good thing. Regulatory changes around Private Residence Relief will mean higher taxes on landlords and this happens after plans have been implemented to phase out mortgage interest tax relief.

In the 2017-18 tax year, landlords could claim 75 per cent of their mortgage tax relief.

In the 2018-19 tax year, landlords could claim 50 per cent of their mortgage tax relief.

In the 2019-20 tax year, landlords can claim 25 per cent of their mortgage tax relief.

From the 2020/2021 tax year the entire tax relief will be scrapped all together and replaced by a much-less generous tax credit that will be worth just 20 per cent of a landlord’s mortgage interest.

The proposals were announced in the 2018 budget. 58% of Landlords reported an increase in their 2017-18 tax bill and since then, almost a quarter of all landlords have considered selling or sold properties to cope with the increased taxes.

If you consider the increase in Stamp Duty Land Tax in April 2016 and the 3% surcharge now associated with second homes and Buy to Let properties, it is unsurprising that so many landlords and investors are withdrawing from the more traditional property investments and looking for alternatives.

The initial claims by the government that it was to ‘ensure that landlords with higher incomes no longer receive the most generous tax treatment.’

In reality, the impact is far more wide reaching. Market experts have said that this increase in taxation has ‘impacted supply to the sector, ultimately making it more difficult for those that rely on the UK’s private rented sector for a home’.

Tony Gimple, founding director of Less Tax 4 Landlords, recently spoke out and predicted that residential landlords can, by mid-2019, expect their tax bill to exceed their profit.

There are a number of other regulations either already in effect or to be implemented shortly which will dip further into landlords’ pockets:

New energy efficiency requirements need all rental properties to have a minimum EPC rating of E. Anything less and landlords will face penalties such as legal action and fines.

Tenant fees ban which is expected to come in this year which means things such as inventory checks or tenancy referencing will be the responsibility of the landlord to pay.

And lastly, tenants’ deposits are to be capped, limited to 5 weeks rent. For landlords who then encounter problem tenants who leave the property in a state of disrepair, the deposit may not cover the costs required to make the property habitable again.

In an already tough market due to Brexit, landlords are leaving the Buy to Let market in droves. Not to say there isn’t profit to be made. It’s just that much harder nowadays.

If you are familiar with Life Tenancies, you will understand why large numbers of residential Buy to Let investors have invested in the alternative residential investment.

Life Tenancies are exempt from the 3% Stamp Duty surcharge.

They can be bought on average at 47% below the RICS valuation.

Life Tenancies offer exposure to the core UK residential market with none of the associated costs of other investments and with minimal maintenance, if any, means larger profits for you the investor at point of reversion.

Find out more about Life Tenancies here.