As April 2017 and the implementation of the new tax rules for buy-to-let approaches, landlords in the UK are contemplating whether they will need to increase rents or sell their properties to cover the higher tax costs.
According to research, the decision made by the government to limit the tax relief on mortgage interest for buy-to-let could have a huge impact on the future of rental properties, with hundreds of thousands of landlords being pushed into a higher tax bracket. Currently, landlords only pay tax on the profit they make after the cost of mortgage interest has been deducted. From April 2017, landlords will have to pay tax on the whole of their profit from rental property.
For a large number of landlords who pay tax at the basic rate, this change could mean that they now have to pay 40% tax rather than 20% as a basic rate taxpayer. According to research by the National Landlord Association, 22% of the landlords questioned said that the new tax change would result in them paying higher rate of tax.
Whether landlords will be affected by the changes, will depend largely on their current level of income and any other sources of revenue. Many landlords are considering either increasing rent to cover the extra costs, or selling their properties, leaving tenants looking for a new home.
Although CeMAP qualified mortgage advisers are unable to alter the tax changes, they may be able to offer advice about obtaining a cheaper mortgage.