Sponsored Content: Will cutting tax relief for private landlords have a dramatic affect on the property market?

David Cameron has vowed to transform “generation rent” into “generation buy” - and the first stage of that process is making it less profitable to be a private landlord.

Will buy to let landlords be able to weather the changes?

Will buy to let landlords be able to weather the changes? - Credit: Archant

Chartered Accountant Keith Senior comments in recent years they have seen a rise in buy to let landlords seeking advice on tax liability at their offices in Bury St Edmunds and Haverhill.

“In the past three or four years there has been a fairly significant increase in the number of people who have property that used to be their main residence but they now rent out, and by default they have become buy to let landlords.

“It may be that they have down-sized and chosen to rent a smaller property for their own use or that they have decided not to sell when the property is depressed in value.”

Landlords not only profit from the rental income, but they also stand to gain if the value of the property increases dramatically over a number of years.


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However, as a result of changes announced in the summer budget, it may be harder to make a profit in the short term.

“Until now landlords have been able to set the mortgage interest payments against the rental income in order to calculate the profit on which tax is due,” explained Mr Senior, a director of Jacobs Allen Chartered Accountants and Chartered Tax Advisors.

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“From April, there will be a gradual reduction in the amount of interest you can off set and in four years time there will no higher rate tax relief on mortgage interest payments. “Any landlords who have existing properties will have relied on this tax relief to determine what their income will be and what level of tax they will be paying.

“In some cases this will turn a profit into a loss after tax.”

He explained that for a higher rate tax payer with a rental income of £4,000 and annual interest charges of £3,000, tax would be payable on £1,000 of the profits and the bill would, therefore, stand at around £400.

However, by April 2020, the tax payable would rise to £1,600, creating a £600 loss.

“The likelihood is we will see a flood of landlords putting their properties on the market over the next four years, which in turn could depress property prices.

“It could also push up rents,” he added. “And for many, renting is still the only opportunity they have of moving out of home and starting out on their own.”

However, many landlords rent smaller, less valuable properties, so if more of these come to the market for sale, the move could also empower first-time buyers, bringing more of these properties into their budget and allowing them to take that first step onto the property ladder

If you are a buy-to-let landlord and want more advice on tax payments and preparing for the changes, contact Jacobs Allen

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