More landlords now anticipate that they will be pushed into a higher tax bracket due to upcoming changes to mortgage tax relief.
Mortgage tax relief is currently being phased out in the UK. 16 per cent of UK landlords believe they will pay more tax as a result of this, a figure which is up 7 per cent in comparison to the fourth quarter of 2016. This is according to the latest research from the National Landlords Association (NLA).
The changes will be fully implemented in 2021, by which time landlords’ mortgage finance costs will count towards their taxable profit. The current average annual mortgage finance costs for a single property landlord stand at £5,600.
According to the NLA, this means that those currently earning just below the upper limit of the basic income tax threshold of £43,500 could be pushed into the higher bracket of 40 per cent, exposed to more tax liabilities as a result of this.
The majority of landlords let out just a single property. This type makes up 62 per cent of the UK’s landlord population, equating to around 1.5 million. The NLA has predicted that many landlords may end up selling their properties rather than continuing to let them due to increased financial pressure. This could affect 368,000 homes, with young couples and families at the most significant risk if these landlords opt to sell up.
Any single property landlords forced up a tax bracket would need to increase the rent by over 11 per cent in order to continue to make a steady yield from the property. This works out as £116 per month for the average rental property.
NLA chief executive officer, Richard Lambert, said: ‘Single property landlords are responsible for providing a huge proportion of the UK’s private rented homes, and these findings show that, slowly, more and more are waking up to the fact their tax bills could be significantly higher in the coming years. More and more families and young couples are making their home in the private rented sector because they cannot either access social housing or afford to buy their own home. Affected landlords will have the choice of either increasing rents or selling up, so either way it’s the people they currently home who look likely to suffer the most as a result of this damaging tax change.’