Since the Chancellor of the Exchequer announced in the post election budget several changes to the way in which landlords are taxed, there has been much discussion on the subject.
George Osborne announced he would be clamping down on buy to let landlords by removing the right to claim more than the basic rate tax equivalent in relief for mortgage interest. He is also tightening the rules about claiming for wear and tear by allowing claims only for money spent rather than the annual 10 per cent of rental that’s currently allowed automatically.
The measure is included in the Finance Bill now going through Parliament.
Thousands of Private Rental Sector (PRS) landlords have begin a petition to lobby the Government in an attempt to reverse the planned tax relief restriction on “individual” landlords, asking for the planned restriction to be reconsidered as they fell it has unfair implications.
At the end of October, Letting Agent today reported 35,000 signatures had been obtained – but is still some way off the target which may trigger a parliamentary debate on the issue.
The tax proposal means mortgage interest tax relief for buy to let owners will be restricted to the basic rate of income tax, currently 20 per cent, even if they themselves pay the higher 40 or 45 per cent tax rates.
George Osborne says the relief, which will address “unfairness in property taxation”, will be phased out from 2017.
There had been a strong reaction from the industry against the measure; in addition to the petition there has been the establishment of a ‘SayNoToGeorge’ website outlining how the measure will hit not just landlords but also letting and estate agents, pensioners, tenants and suppliers.
The Institute of Chartered Accountants in England & Wales, speaking to the Daily Telegraph, slammed the Chancellor’s controversial new tax on buy-to-let tax as “unfair and unreasonable” saying it will force some landlords out of business, distort the private rental sector and make life harder for young potential buyers.
Other reports declared rents would rocket, many private landlords would sell up, meaning hundreds of potential tenants unable to afford living accommodation and a general disenchantment with the letting industry. According to a survey carried out by Your Move and Reeds Rains lettings agencies, around nine per cent of the 1200 landlords questioned think it’s a good time to sell up, with the tax reforms influencing their decision more than any other factor. Many fear letting out a property will become far less profitable when the reforms begin to come into force in April 2017.
Despite this raft of doom and gloom, mortgage lending to buy to let landlords has increased by volume and by value in the third quarter of the year, according to the Council of Mortgage Lenders.
Buy to let property purchase rose by 36 per cent over the year, while remortgaging for buy to let purposes saw a 62 per cent increase.
So whilst demand continues to outstrip supply – a recurring theme during 2015, I don’t see any reason to believe there is any cause for concern for most landlords. So long as they have the support of a good Letting Agent, most landlords should continue to see a good return on their investment. With more rigorous regulation and the “Right To Rent” immigration checks I am finding more and more landlords who previously managed their properties themselves, are now coming to me to ask for help and support. That is fine by me, that is what we are here for after all!