Landlords could see tax bills rise by 13%
Buy-to-let landlords across Britain could see their tax bills rise by around 13 per cent, according to Upad. The online letting agent suggests that the changes to mortgage tax relief could see taxable profit go up, having a big impact on take-home profit, reports Property Wire.
April saw the first round of changes to mortgage tax relief come into effect, with further alterations being phased in over the next couple of years, before being fully in place in 2020. At this time, 100 per cent of buy-to-let finance costs will be subject to the basic 20 per cent tax rate.
The changes will see tax being paid by buy-to-let landlords increasing by 13 per cent between the 2017/2018 financial year and 2018/2019. According to Upad's research, in an attempt to mitigate the extra costs, 20 per cent of landlords will increase rent, which could drastically affect tenants.
James Davis, chief executive officer at Upad, said: "Despite the changes being gradually introduced over the next four years, our latest research shows already how out of pocket landlords are set to be by 2018/2019 alone, as they see a big rise in their tax bills and a substantial hit to their profits."
He went on to say that while the worst affected will be those in the higher rate tax bracket, many landlords could see themselves pushed into this bracket even if they don't see an increase in their income. This could mean that many buy-to-let landlords are actually renting at a loss.
While raising rents is a way to improve take-home profit each month, Mr Davis warns against simply increasing the costs for tenants without also offering something in exchange.
"Rent rises are likely to be deeply unpopular with tenants so landlords will need to think about adding some cost-effective, tax deductible improvements to their properties that justify asking for an increase. For instance, by providing complimentary Wi-Fi, upgrading the appliances or giving the kitchen or bathroom a makeover," he continued.
Other options for landlords, according to Upad, are to sell the low-yielding property, setting up as a limited company, and reducing mortgage payments. Mr Davis also suggests negotiating with letting agents for lower costs, especially with the forthcoming ban on tenancy fees in England.