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Changes in Tax for Landlords

Written by Posted On Wednesday, 08 February 2017 14:37

Fresh taxes on landlords may leave a bitter taste


Keep abreast of new tax initiatives. It is one way that helps me to anticipate market shifts, making sure that I make the right decisions at the right time.

I mention this because there has been two key changes recently. Firstly, from April this year, Stamp Duty Land Tax (“SDLT”) will include an additional charge for residential buy-to-let and second home buyers. Secondly, there has been a careless promise by the government to introduce “Mortgage interest relief” – something that could impact millions of landlords and tenants.

Stamping out won’t prevent buyers

As of this year, there has been a 3% loading on existing SDLT rates for anyone who is buying an additional property for £40,000 or more. That means anyone who is buying a holiday home, buy-to-let or somewhere extra to live, they will be charged more.

For example, any additional property bought for between £125k - £250k will now be charged SLDT at a rate of 5% instead of 2%.

While this cost mounts up, it shouldn’t deter landlords from buying their second or third property. Many will have already benefitted greatly from increased property prices. Also landlords can deduct from the sale of their property under Capital Gains Tax.


Mortgage interest is no relief for anyone

In a perceived bid to side with the mass tenant population in the UK, the recently sacked Chancellor of the Exchequer George Osborne introduced a restriction on the amount of income tax relief on mortgage interest. That is effectively an additional tax on the cost of owning a buy to let property, which is not something we’re used to. 

Previously, we have all been comfortable with our predetermined tax on the profit of a property. After taking away mortgage interest and other costs from our rental income, we are left with a taxable amount, usually between 20% and 45%.

Now we are being told that you will no longer be able to deduct mortgage interest in full from your taxable profits/allowable loss, leaving you with a higher taxable profit (or smaller allowable loss). You will then need to deduct 20% of your interest rate in addition.

In short, it means that higher and additional rate taxpayers will be subject to increased tax on their rental income or in the case of loss making portfolios a reduced amount of loss available to offset against future rental income. Moreover, for landlords with highly geared and/or loss making portfolios, the restriction on mortgage interest relief could result in the landlords having to source funds to pay the income tax due on the taxable rental income from other sources.

There is still some discussion as to whether or not the tax will come into play. Landlords groups will stand in the way and hopefully the new government will realize the potential consequences of this law. At this present moment, letting agents such as Upad are having discussions around these changes to the law and how it will affect both landlords and tenants. At present, it appears that these tax changes will price a lot of people out the market.

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Chris Smith

I'm Chris and I have been in the business of passing on advice to first time buyers, general buyers and those buying to let for a few years now. My time working as a mortgage advisor, and my business background give me the knowledge and the insight to make sure that you don't make any mistakes in your purchase. Not everyone gets the advice that they need when buying a property, a lot of agents just want the sale. As I'm not here to sell, you know that my advice is genuine and that it can help you on your endeavour.


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