The Government Is Making It Tougher for Landlords

It’s been several months since Chancellor George Osborne announced the summer budget on July 7th but landlords around the country are still left sitting and waiting for more information about the new tax regime to emerge.

Landlords with buy-to-let properties have felt that the summer budget is an unjust attack on their business and potential for growth. While the government has suggested that they are “leveling the playing field” for those who want to buy their own home, buy-to-let landlords argue that they don’t purchase properties that home owners seriously consider purchasing.

For example, landlord Cathy Colston owns 20 properties around England, agrees that there are problems in the UKs housing market but the problem is not landlords. Her, like many other landlords, buy properties that have potential for return while homeowners are buying properties to live in. She argues that the real problem is the lack of access to mortgage financing.

However, after a decade of the buy-to-let program there is now a £2bn debt on mortgages and this is seen as becoming increasingly worrisome – as reflected by the summer budget. Here are 5 ways that the summer budget will affect landlords.

1. Changes to Wear and Tear Allowance

The wear and tear allowance allows landlords to reduce the tax they pay – regardless of whether or not they replace furnishings in their property. From April 2016, landlords will only be allowed tax relief if they replace or improve furnishings.

2. Restricted Tax Relief

As of now, landlords can deduct their costs (including mortgage interest) from their profits. Wealthier landlords receive tax relief at 40% or 45%. The government claims that this gives them the upper hand against other homebuyers. By April 2015 this will be restricted to 20% and for all individuals by 2020. This move is intended to narrow the gap between those buying to let and those buying to make a property a home.

3. Social Housing Changes

Rents for social housing will be reduced by 1% a year for 4 years but for tenants on higher incomes (over 40,000 in London and 30,000 everywhere else) will be required to may market rate (or near market rate) rents. This means that Housing associations rental income could fall by as much as 15%.

4. Welfare System Reform

The summer budget proposal suggests the reform will make it fairer for taxpayers who pay for it but landlords might take a hit. Landlords that currently have tenants on Housing Benefits will have to adjust to a new benefit cap, which will be reduced to £20,000 (£23,000 in London). Additionally, adults between the ages 18 and 21 can no longer claim benefits unless special circumstances apply.

5. Increased Inheritance Tax Threshold

Finally, some good news for many landlords. As of now the Inheritance Tax is charged at 40% on estates over £325,000 per person. By 2020-2021 the tax threshold (meaning tax-free allowance) will be up to 1m for a surviving spouse or civil partner. Furthermore, in 2017, property will be allowed to pass to children or grandchildren tax-free.

For more information on how the new tax rules will impact Landlords click here