The Budget – How this will affect buy to let landlords

George Osborne delivers second budget of 2015

George Osborne delivers second budget of 2015


Landlords facing £2bn hit in Osborne’s Budget

It is budget week and with that has come some rather bad news for Britain’s 1.4 million landlords.

Loan interest relief restricted for buy-to-let landlords

From 2017 landlords will no longer be able to deduct all of their mortgage interest payments from their tax bill. The government will restrict the amount of income tax relief landlords can get on residential property finance costs to the basic rate of income tax.

Finance costs include mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

Landlords will no longer be able to deduct all of their finance costs from their property income. They will instead receive a basic rate reduction from their income tax liability for their finance costs. To give landlords time to adjust, the government will introduce this change gradually from April 2017, over four years.

The restriction in the relief will be phased in as follows:

• in 2017/18, the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction

• in 2018/19, 50% finance costs deduction and 50% given as a basic rate tax reduction

• in 2019/20, 25% finance costs deduction and 75% given as a basic rate tax reduction

• from 2020/21, all financing costs incurred by a landlord will be given as a basic rate tax reduction.

Wear and tear allowance allowance to be replaced

Landlords will only allow tax relief when new furnishings are bought, rather than the existing “wear and tear” allowance. This could cost landlords an estimated £700 million.

What the chancellor said…

George Osborne said that the changes would help level the playing field between buy to let borrowers and first-time buyers.

Buy to let landlords have a huge advantage in the market as they can offset their mortgage interest payments against their income, whereas homebuyers cannot.

All this has contributed to the rapid growth in buy-to-let properties, which now account for over 15 per cent of new mortgages, something the Bank of England warned us last week could pose a risk to our financial stability.

What the experts said…

Robert Walker of PwC said,

Today’s changes do nothing to address the fundamental lack of supply in the UK housing market and ultimately may backfire and hit people who are having to rent.

We could see buy-to-let investors feeling the squeeze and putting up rents. This would have a major impact on Generation Rent, who would find it harder to save for a deposit.

What we think…

We are all aware of the deficit that this Government has to bring down however when tax cuts directly affect you it is hard not to feel cross. As buy-to-let investors we take risks with our (taxed) hard earned income in order to buy property that we rent out.

Yes, we hope to make some money out of it each month and we hope to benefit from capital growth of the housing market but we also provide a solution to a very big problem this Government has  – a real lack of housing.

By removing these tax reliefs for landlords, the Government may risk landlords increasing rents in order to mitigate the costs and this is not good for the rental market, landlords may chose to sell and house prices may be forced down if the market is a wash with supply of stock.

We cannot escape tax, do not think you can. As I wrote last year, HMRC ask us annually to give information about our managed portfolio and by law we have to do this.

We strongly suggest that you speak to your accountant about this new change and sure you are running your affairs in the most tax efficient way you can.

The next time you are told you must be a squillionnaire because you are a landlord and own property, you can advise quite confidently that you are not!

Tags: , , , , ,

No comments yet.

Leave a Reply

Become the forefront of local landlord knowledge

Subscribe to our monthly newsletter for the latest landlord and industry news, buy to let tips and upcoming property developments. Your details will never be shared and you can unsubscribe at any opportunity.
Email address
Secure details and no third party spam, guaranteed.