The vast majority of Britons, including private tenants, are unaware of tomorrow’s buy-to-let tax changes, according to new research by Vital Research and Statistics, on behalf of Experience Invest.
It is particularly important for tenants to be aware of the buy-to-let tax changes, as their rents could soon rise as landlords try to recoup their losses through higher rents.
From tomorrow (Thursday 6th April), the amount of mortgage interest and other finance costs that landlords can offset against tax will be restricted to the basic rate of Income Tax under Section 24 of the Finance Act 2014.
85% of the 2,000 people surveyed were unaware of the buy-to-let tax changes and, if given the choice, almost half (45%) would choose to invest in property over other investment assets.
With many landlords likely to face the prospect of having their profits wiped out by the buy-to-let tax changes, tenants are likely to pay the price of the Government’s new measures by being charged higher rents.
The changes will be gradually introduced up until 6th April 2020, when tax relief will be withdrawn altogether. The consequences of Section 24 will mean that it is likely that higher rate taxpayers will only receive 50% of the relief that they currently get, meaning that many landlords will be left with little choice but to pass higher costs onto tenants.
Ray Boulger, of mortgage broker John Charcol, says: “The new way to calculate income may push lower rate taxpayers into the 40% tax bracket. There will be a substantial effect on landlords who receive child benefits – especially those who have more than one child – and for those who will find themselves in the 45% tax bracket.”
Boulger recommends that landlords seek specialist advice, as “there is not a one-size-fits-all solution”.
He adds: “For new purchases, setting up as a limited company is one option, as properties held in limited company structures still qualify for tax deductible mortgage interest rates.
“However, the impact of Capital Gains Tax and Stamp Duty Land Tax will often mean it is not worth switching properties already owned to a limited company structure.”
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