Thousands of landlords have been shocked by an unexpected announcement by the chancellor during the summer budget in July this year.

Tax increases, which will be gradually introduced from 2017 and in place by 2020, will mean that a large number of landlords will be paying more than 100 per cent tax on their rental income.

The new tax regulations are also complex and some investors are only just coming to terms with the changes. Although it will be mainly higher rate or additional rate taxpayers who will feel the impact, some basic rate taxpayers may also be affected.

The group that will be hit worst of all is middle income savers, who have invested in property as an alternative to traditional savings accounts, to supplement pensions. The changes mean that landlords are unable to deduct the cost of mortgage interest from their rental income before paying tax. The outcome of this is that wealthier landlords who don’t have a mortgage won’t experience any changes to their income.

According to one accountancy firm, a landlord who pays tax at the higher rate and has mortgage interest which amounts to 75 per cent of rental income, or more, will not benefit from any income by 2020. For additional rate taxpayers, profits will be completely wiped out if the mortgage interest equates to 68 per cent of their rental income.

Mortgage advisers may have to factor in this change when dealing with those seeking buy to let mortgages. As they are CeMAP trained this shouldn’t be a problem for them.

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