Buy-to-let landlords to be hit by tax relief changes in Budget 2015

Private Rental July 8th, 2015
Buy-to-let landlords to be hit by tax relief changes in Budget 2015

Buy-to-let landlords to receive less tax relief after new budget announced by George Osborne

Buy-to-let has been a booming industry for the past few years, but the chancellor is now seeking to reduce the mortgage tax relief for landlords. Currently, landlords can claim tax relief on interest repayments at the top level of tax. The chancellor has announced that the amount that landlords can claim as relief will be set at the basic rate of tax – currently 20%. This is a drastic change from the 40% or 45% tax relief offered on current mortgage interest rates.

This will not be begin implementation until April 2017 and it will be slowly phased in over a 4 year period until 2021. One advisor has recommended that this gradual approach should enable landlords to take a ‘planned approach’ towards their portfolio. Nonetheless, it will cost UK landlords around £6.3 billion a year, an inquest found recently. All landlords are to be affected by the change, from small solo landlords to professional landlords with large portfolios. Phil Nicklin, from Deloitte, warned that ‘this measure will almost double the effective costs of borrowing for a taxpayer on the highest rate of tax’.

These rises in costs for landlord could therefore be transferred to additional costs for tenants, in order to keep profits at a similar level. The National Landlords Association warned that the private rental sector could see prices rise by almost £3 billion if these changes implemented.

Any landlords that are planning on purchasing a buy-to-let property in the near future should factor in the new tax legislation into their calculations, as these changes could have a strong effect on their profit forecasts. At the moment, it seems the tax changes are going to be quite painful for landlords. More is to be announced soon, so keep watching the budget news and the Arthur Blog to stay informed.

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