Almost half, some 47% of landlords in the UK have changed their investment plans based on tax changes, according to new research.
Landlords consider changes to tax relief as the biggest influence on their investment strategy, with 25% ranking it as their primary concern, above changes to capital gains tax and increased stamp duty.
The research from Simple Landlords also shows that taking into account all landlords’ concerns, tax relief was the joint highest influence at 18%, alongside Government legislation, with unoccupancy at 12% and tenant damage 10%.
Despite this less than 10% of all landlords intend to reduce the size of their portfolios as a result of the revised tax regime. Some 4.4% of those owning at least two properties actually intend to invest and 63% of this group said the changes had had no effect on their plans.
The National Landlords Association estimates that the initial loss in tax relief this year alone would push over 440,000 lower rate taxpayers, around 22% of the market, into a higher tax bracket. In total, it is estimated that 8.2 million people will be effected in England alone by the changes.
The research also found that 38% of landlords owning at least two properties would consider forming a limited company, trust, limited liability partnership or a combination of these to lessen the impact of the tax reforms.
Overall 2017 has been already challenging year for the buy to let market with a number of measures coming into effect, including a stamp duty surcharge introduced on second and successive homes, increasing regulation, and more stringent lending requirements from the PRA.
The phased reduction of tax relief on mortgage payments began in April this year with the slashing of the deductible from 100% to 75% of mortgage interest payments against rental income. Relief will fall again to 50% in April 2018, then by a further 25% in 2019 before being eliminated the following year. It will be replaced by a tax credit of 20%, but landlords are concerned it will prove insufficient to offset the loss.
Landlords will face additional challenges in 2018, including proposed new requirements for HMO licensing, and new requirements for energy performance which will come into effect for new lets and renewals on 01 April.
‘We know that landlords are adapting to the changes in the market, and are willing to embrace the challenges and find opportunities to develop more profitable and sustainable portfolios,’ said Alex Huntley, head of operations at Simple Landlords.
‘There is no one solution or route, and landlords need to get expert advice tailored to their individual circumstances. But it’s heartening to see the majority of landlords remaining undeterred, and thinking about how to change with the market,’ she added.