New Law Means Buy-to-Let Landlords Face Tax Increase

At midnight on April 5th the new financial year began and a new tax was introduced to the complaints of many a buy-to-let investor.

What Has Changed?

With the introduction of the new financial year, changes were made so that property investors can no longer claim a higher rate tax relief on mortgage interest payments.

This means, whereas landlords previously paid income tax on rental earnings after mortgage interest payments had been deducted (20%, 40% or 45% depending on their tax bracket), they will now have to pay tax on the full rental income and get a tax credit instead.

This process will be phased in over four years and tax reliefs will gradually decrease until a 20% tax credit is introduced in 2020. Higher rate taxpayers with large portfolios will be hit worse, however wealthy landlords with no mortgage will be unaffected.

This change was first announced as part of a three-part programme by former Chancellor George Osborne back in 2015 which has seen many landlords affected. Other components that have been implemented include a 3% stamp duty surcharge for second home buyers, as well as the 10% wear and tear tax break being scrapped.

What Are the Repercussions of these Buy-to-Let Tax Changes?

For some, this change will bring welcome relief, however professional landlords throughout the country are in uproar as this development could seriously harm their profitability. Small investors may also be deterred from expanding their property portfolios and decide to renovate or develop existing properties instead.

According to the Council of Mortgage Lenders, the buy-to-let market has already slowed in anticipation of the changes with the number of landlord loans being taken out down 21% on last year.

A remedy to this issue may be for landlords to increase rents, but this will restrict the supply of affordable property and may prevent first-time-buyers who are currently renting from getting on the property ladder.

Of course, this does provide some relief for those looking for a new home to live in as there will likely be less competition for properties now.

Buying a House Soon?

Whether you’re looking for a new investment for your portfolio or a new family home, our friendly and knowledgeable conveyancing solicitors are on hand to help with the legal process.

We’re one of the leading conveyancing law firms in Wales and pride ourselves on the high level of service we provide our clients, so find out more about our conveyancing services or get in touch with our team of solicitors on 0808 178 2773 today.