Landlords To Pay Extra £1.3bn In Tax This Year

According to RSM UK, landlords in the UK will pay more than £1bn extra in taxes this year compared to just four years ago. This is due to frozen tax allowances and the removal of reliefs. The tax burden on property investors will reach £8.3bn this tax year, up from the £7bn collected by HM Revenue & Customs in 2019-20. The removal of mortgage relief – which was gradually cut between 2017-18 and 2020-21 – cost landlords an estimated £796m this financial year, up from £747m last year, according to forecasts from the Office for Budget Responsibility. Landlords used to be able to deduct 100% of mortgage interest from their rental income when calculating profits. Now, they only get a 20% tax credit.

The removal of tax relief on mortgage interest payments and frozen income tax allowances and thresholds are the two main reasons behind this steep increase in tax burden. Landlords are forced to declare an “artificially high” income because they cannot deduct as many expenses. As a result, some landlords are transferring their homes to limited companies, which would allow them to get full tax relief on mortgage interest. However, this process can be prohibitively expensive as landlords have to effectively sell their properties to the limited company, which would make them liable for stamp duty, including a 3% surcharge for purchases of additional homes.

The removal of tax relief on mortgage interest payments, frozen income tax allowances and thresholds, and other tax changes have made it more difficult for landlords to make a profit. Landlords are now feeling the impact of rising mortgage rates as well. The average two-year buy-to-let mortgage rate was 5.95% this month, compared with 2.9% a year ago. Likewise, the average buy-to-let tracker mortgage rate has risen from 2.12% to 5.11% during the same period.

This increase in tax burden has prompted calls for the Government to reverse years of anti-landlord policies. Clive Betts, a Labour MP and chairman of the influential housing select committee, said reinstating tax relief on mortgage interest should be considered to make investing in the rental sector more attractive to small landlords. He said the Government appears to be trying to push landlords out of the rental sector to make more properties available and affordable for first-time buyers.

The rising tax burden on landlords has resulted in landlords exiting the rental market in the face of soaring costs, reducing the supply of rental properties. This, in turn, is causing rents to soar as a result of dwindling rental stock, making it harder for first-time buyers to get on the property ladder. The average rent has increased by 4.4% in the past year, according to the Office for National Statistics.

Bottom Line

In conclusion, landlords are facing a significant increase in tax burden due to a combination of factors. The removal of tax relief on mortgage interest payments, frozen income tax allowances and thresholds, and other tax changes have made it more difficult for landlords to make a profit. The rising tax burden has resulted in landlords exiting the rental market, reducing the supply of rental properties and causing rents to soar. There have been calls for the Government to reverse years of anti-landlord policies and reinstate tax relief on mortgage interest to make investing in the rental sector more attractive to small landlords. Visit Reliance Residential for more details.