Due to the new legislation
The plans to restrict tax relief on mortgage interest for buy-to-let properties has been widely publicised. However, it’s only now the magnitude of the situation is coming to light. 440k landlords are expected to be pushed into higher rate tax as a consequence of the new tax rules, which are phasing-in from 2017 – 2021.
This article does not constitute advice.
Professional advice should be taken prior to acting on any part of it.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
440,000 forced into higher rate tax
The National Landlord Association (NLA) has calculated that 440,000 landlords that currently pay tax at basic rate, will be forced over the threshold next year when new tax legislation takes effect.
The changes, that are currently being challenged and lobbied by the NLA, involve a restriction in the amount of tax relief that can be claimed on mortgage interest payments, which is the largest cost (by far) for almost all landlords. The same applies for other finances charges too.
From 2021, landlords will be unable to claim back the tax relief at all. In the meantime, there is a phased-in approach, as follows:
- April 2017 – higher rates can be claimed for 75% of mortgage interest costs
- April 2018 – higher rates can be claimed for 50% of mortgage interest costs
- April 2019 – higher rates can be claimed for 25% of mortgage interest costs
- April 2020 – only basic rate tax relief can be claimed
The consequences for landlords & tenants
The Chief Executive of NLA, Richard Lambert, is campaigning against these tax changes.
When they were announced last year it was communicated by the government that it would affect only a proportion of higher-rate tax-payers. This is now known to be untrue.
The NLA are proposing that a reconsideration of the tax legislation is necessary, so it only affects new loans taken out after April 2017.
- The consequences for landlords is additional tax, in some cases, their rental property will end up running at a loss.
- The consequences to tenants is that their landlord will either increase rents to cover costs, or sell, forcing their tenants to relocate.
This is, in part, the intention of the government, as they are keen to increase home ownership in the UK.
However, realistically, even with the government incentive schemes, many tenants simply don’t have the means to save for a deposit.
Need help with your buy-to-let property?
Dental & Medical Financial Services help landlords with their buy-to-let property mortgages. Contact Chris who will be able to help outline your options and advice on the best rates for you.
Tel: 01403 780 770