A million families to be hit by buy-to-let tax changes

Dramatic tax reforms forced on PRS landlords by the Government will impact on more than a million families across the country.

The Government is introducing changes to Mortgage Interest Relief (MIR) to tax landlords on income rather than profit and has brought in a three per cent Stamp Duty Land Tax (SDLT) surcharge on buy-to-let purchases. This is in addition to freezing Capital Gains Tax (CGT) on the sale of residential property at 28%, while reducing it to 20% elsewhere.

The impact is already being felt, with a massive one in four landlords having either sold a property or put one on the market as a direct result of tax changes. And research from the RLA shows that the majority of those to be affected by landlords selling up raising rent to cope with the extra costs are families with children – a total of 1.6 million across the country.

The RLA surveyed 2,883 landlords to assess the impact of these changes on the supply and cost of rental homes – with around a third planning to leave the sector altogether and 56% planning to raise rents in the next 12 months.

In all 77% of landlords reported the recent budget changes will negatively impact on rental income and 67% of landlords will have reduced profitability due to changes to Mortgage Interest Relief alone.

In all 68% of landlords reported changes would reduce their profitability by at least 20%, and 14% of landlords reporting the change would reduce profitability by over 60%.

A massive 36% of landlords reported the removal of MIR would result in them making a loss on their investment. So what is the impact on the tenant? According to the RLA research, 58% of landlords are considering reducing investment in their portfolios because of the changes, 66% of landlords are not planning on buying any new properties, with 31% of landlords considering leaving the sector altogether.

This… is set alongside RICS’ prediction 1.8 million new homes are needed by 2025. So what happens to the tenants whose landlords are left with no choice but to sell up, or increase rents to mitigate the impact of these tax changes? With the decline of the social housing sector, lack of affordable homes being built and tightening of credit for first time buyers; these changes are not going to help improve renting for tenants, landlords or the country.

According to the lasted English Housing Survey 37% of the 4.3 million households in the PRS are households with dependent children. This equates to 1.6 million. Alan Ward, RLA chairman said: “These figures run counter to the Government’s claims that only one in five landlords will be affected by the MIR changes. “And we believe the Government’s changes to taxation will negatively impact over a million of families who depend on the sector for a home.

“This could potentially disrupt children’s education and cause financial worry for parents who may have to choose between feeding their child or paying the rent on time.”


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Written by: Houseladder