Number of UK landlords who believe tax change will affect them rises

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Number of UK landlords who believe tax change will affect them rises

uk property investment

More landlords than previously thought now believe that they could be pushed into a higher tax bracket due to changes to mortgage tax relief which is being phased out in the UK.

Some 16% think they will pay more tax, an increase of 7% compared to the fourth quarter of 2016, according to the latest research from the National Landlords Association (NLA).

By the time the changes are fully implemented in 2021 landlords’ mortgage finance costs will count towards their taxable profit. The current average annual mortgage finance costs for a single property landlord is £5,600.

The NLA says that 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%, and therefore exposed to significantly more tax liabilities.

Individuals who only let out a single property are by far the most prevalent type of landlord, representing approximately 62% of the UK’s landlord population, around 1.5 million.

The NLA believes that as landlords may end up selling rather than continuing for financial reasons, this could affect 368,000 homes, with young couples and families potentially at the greatest risk if landlords sell.

The NLA also says that any single property landlords forced up a tax bracket would need to increase the rent by more than 11% in order to continue to make a steady yield from the property, which equates to as much as £116 per calendar month more for the average rental property.

‘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,’ said Richard Lambert, NLA chief executive officer.

He explained that 21% of landlords with just one property do not make a profit, and over the next few years those bumped up a tax bracket will find that their ability to continue to provide good quality housing will be seriously affected.

‘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,’ Lambert added.