Buy-to-let landlords selling up ahead of tax crackdown
It has emerged that hundreds of thousands of landlords and their accountants are realising the implications of Chancellor George Osborne’s surprise tax changes introduced during the Summer Budget.
According to a recent report in The Daily Telegraph, a crackdown on higher rate relief could dent profits from buy-to-let properties. The tax increase, on which there was no consultation, will be phased in from 2017 over three years. This change was unexpected and the new regime is highly complex, with the effects only just coming to light. Indeed, many investors remain unaware of the change or the extent to which it is likely to affect them.
The change basically means that all higher-rate taxpayers who own buy-to-let properties on which there is a large mortgage will pay substantially more tax.
It is also set to affect some current basic-rate taxpayers, as the change will push them into the higher-rate tax bracket.
The main effects could be as follows:
- The actual tax paid on the investment will rise twofold or more.
- The tax rate payable will rise above 100%, meaning that more than all of the profit is paid in tax.
- There will be a degree of tax that pushes investors into loss, making the property investment financially unviable. Many buy-to-let landlords could subsequently increase rents dramatically or sell their property.
Who will this affect?
It’s starting to look like those who will be worst hit are the middle class savers who have chosen to invest in buy-to-let. Landlords who don’t need mortgages are untouched because the point of the changes is the removal of the landlord’s ability to deduct the cost of their mortgage interest from their rental income when they calculate a profit on which to pay tax. This means that landlords will be taxed on their turnover rather than their profit.
We are here to offer advice and guidance on these changes.
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