Buy-to-let landlords will be left with little alternative but to raise rents or sell their properties due to the government’s punitive new tax regime, says a specialist lawyer.
The pending removal of landlords’ mortgage interest tax relief from next year does not just mean that landlords will no longer be able to deduct mortgage interest payments, but it will also force around 440,000 basic-rate tax payers into a higher tax bracket, according to the National Landlord Association (NLA).
The current rules that permit landlords to offset all of their mortgage interest against tax will, from April 2017, be phased out, restricting the amount of mortgage interest landlords can offset against tax on their property investments.
By April 2020, once they have been withdrawn altogether, the disastrous consequences of Section 24 will mean that it is likely that higher-rate tax payers will only receive 50% of the relief that they currently get, which will eat into their rental returns as they will be required to pay significantly more income tax.
Graham Ireland, private client partner at Lancashire-based WHN Solicitors, has accused ministers’ plans to tighten taxes as using landlords as scapegoats for problems faced by first -time buyers.
Graham believes one of the real reasons people cannot get onto the property ladder is that lenders are demanding higher interest rates for buyers who wish to borrow higher percentage mortgages.
He commented: “We have two landlord clients with large portfolios who have decided to sell some of their properties because of the upcoming changes and the changes that have been implemented over the last few years. One of them has over 30 properties. Their view is that the government seems determined to penalise landlords.
“They have no doubt that the changes will result in rents being increased, partly because of supply and demand and partly because landlords will need to recover some of their extra costs by raising rents.”
Tim Melia, director of Melbro Group Ltd, which owns and manages both commercial and residential properties across East Lancashire, believes that the tax changes are putting “greater strain” on buy-to-let landlords and have made it so difficult that “it’s no longer worth the effort to continue”.
He continued: “We already break even at best on the residential element of our portfolio, but in some years have lost money and additional planned changes will only make it more difficult.
“The government sees landlords as the reason why many first-time buyers cannot get on the property market, but the main problem is the fact that first-time buyers are penalised by high percentage mortgages demanded by lenders.”