Taxing Times Ahead – Are Changes to Tax Driving Landlords out of Buy-to-Let?

Property News

February the 1st is the day when many people across the length and breadth of the UK will breathe a sigh of relief that their annual tax return is finally done and dusted. Even though it is possible to file at any point after the end of the tax year in April, the tedium of the task sees many people each year put it off to the last minute. This year, however, there is little in the way of relief for landlords and what there is will literally shrink to nothing between now and 2020.

The “Tenant Tax” tops landlords’ lists of concerns

New research from Simple Landlords shows that the changes to mortgage tax relief, commonly known as the Tenant Tax heads the list of landlords’ concerns going into the New Year. It ranks above the Stamp Duty surcharge, changes to Capital Gains Tax, void periods and tenants causing damage and shares equal first place with legislative changes.

Taxation drives investment strategy

It will probably surprise few people to learn that almost half of landlords have indicated that the recent changes to taxation have caused them to change their investment plans. What may, however, come as a surprise is that more than 90% of landlords intend to maintain or even expand their portfolio in spite of the tax changes. While less than 5% of landlords who already own two or more properties said that they intended to increase the size of their portfolio, almost two thirds of this group said that the tax changes had had no impact on their plans.

Landlords adapt to legislation and regulation

Landlords may not be great admirers of legislative changes but they do adapt to them. The controversial “right to rent” scheme has been absorbed and landlords will doubtless adapt to forthcoming changes such as the proposed new rules around HMO licensing and higher standards for energy efficiency and safety. Tighter regulations around mortgage lending are also becoming a new reality for landlords, particularly “portfolio landlords”, i.e. those with four or more properties.

Agreement that there is no “silver bullet” for current and future challenges

When the changes to mortgage tax relief were announced, the relevant sections of the press were filled with articles about the “landlord loophole” of moving investments into a limited company, which operated to different rules from private landlords. While this may indeed be a very viable solution for some landlords, it’s not necessarily a straightforward undertaking nor is it likely to be a particularly cheap one. It also has to be noted that the fact that limited companies operated along different lines to private landlords has its drawbacks as well as its advantages. For example, at current time, private landlords are likely to have access to a much greater range of mortgage lenders competing for their business.

Recognition that it’s important to think calmly rather than respond emotionally

People can get very emotional about their homes and that’s completely understandable. Buy-to-let property, however, is an investment and emotions need to be kept out of investment decisions. The reality is that for some people, buy-to-let is still a solid investment while for others it may have become more effort than it’s worth. Fortunately, this latter group do have other options for benefitting from the strength of the property market, such as investing in commercial property, which is less politically-sensitive than residential property and hence more lightly regulated.

Author Bio
Hopwood House are specialists in property investment, with a wide range of investment opportunities in the UK student property, care home and buy-to-let property investment markets.

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