A Sea Change for Landlords?

The Government is determined to build a housing market fit for the future. It aims to make the private rental market fairer and more transparent for tenants.

Table of contents

A Sea Change for Landlords?

The Government is determined to build a housing market fit for the future.  It  aims to make the private rental market fairer and more transparent for tenants.  In doing so, it will reduce the number of private landlords in the UK by making it less lucrative.

Landlords profits being reduced

Landlords across the country are now resigned to the fact that due to more new legislation their profits will be reduced.  A stamp duty surcharge was introduced 2 years ago, and the 10% wear and tear allowance has been discontinued. Landlords can now claim only actual costs spent on repairs, rather than a blanket 10% reduction for wear and tear.

Tax relief on mortgage interest

The latest attempt by the government has been to phase out tax relief on mortgage interest.  Higher taxation is forcing many landlords to rethink their strategy, and in some cases to sell up.  The gradual loss of tax relief from now until 2020 will hit higher rate and additional rate taxpayers.  Indeed the loss in tax relief is also likely to push around 450,000 lower rate tax payers into a high band, according to the National Landlords Association. Until April 2017, Landlords could deduct all their mortgage interest payments before calculating their tax bill, meaning they would be taxed purely on their profits rather than their overall turnover.  With the majority of landlords utilising interest only mortgages, this meant the savings on offer were potentially significant.

Mortgage interest tax relief changes

Mortgage interest tax relief changes will be phased in soon and Landlords 2017-18 tax returns will be the first to fall under new government regulations.  Originally announced in the 2015 Budget, this means the amount of mortgage interest landlords can offset against their tax bill will be reduced. This figure is set to drop each tax year until it is fully replaced by a tax credit for mortgage interest in 2020-21.  Investors could see thousands of pounds of potential profit wiped out. When tax returns are filed for the 2017/18 tax year (due January 2019) they will only be able to claim tax relief on 75% of their mortgage interest.  They will get a tax credit on the rest of their mortgage interest payments.   The following year, the relief will only be available on half of their interest and they will get 20% credit on the rest.

The end of Buy to Let?

Some are calling this latest move from the government the end of Buy to Let for all but the richest.  The number of new Buy to Let borrowers plummeted from 29,100 in March 2016 to around 4,000 the following month when the stamp duty surcharge was introduced.  According to the Council of Mortgage Lenders it has struggled to pick up substantially since. New rules are also on the way to stop landlords and property owners pocketing tax-free cash on holiday let income.  Rent-a-room relief was aimed at helping home owners let their space rooms in a bid to reduce the housing crisis. Instead, many are using this as an opportunity to rent out their homes to tourists while they moved out and claimed up to £7,500 a year in tax free income.   In an attempt to stop home owners from profiting from websites like Air BnB, the Government has stepped in with new legislation.

Shared occupancy clause

It will be introducing a new “shared occupancy clause” for rent a room relief, which will require the individual to be resident in the property and physically present for at least some part of the letting period.  Doing so will return the relief to its original purpose of incentivising the letting of spare rooms. For example a home owner letting their main residence during the Wimbledon tennis tournament to a visiting player whilst they go on holiday for the whole rental period is not eligible for rent a room relief.  This is because there is no shared occupancy so it is taxable rental income and must be declared. However a landlord renting a room to a student for an entire term who goes on holiday for a week during that period is qualified for rent a room relief as occupancy is shared for part of the rental.

Letting fees ban

A final concern for landlords is the new Government bill to ban letting fees across England.  Unexpected letting fees and high deposits can cause a substantial affordability problem for tenants and are often not clearly explained.  This leaves many residents unaware of the true costs of renting a property. A recently introduced bill will bring an end to costly letting fees and save tenants around £240m annually, according to government figures.  The Bill will also give tenants greater assurances that the deposit that they pay at the start of the tenancy cannot exceed 6 weeks’ rent. The Tenant Fees Bill will stop letting agents from exploiting their position as intermediaries between landlords and tenants and prevent unfair practices such as double charging for the same service. It will also help to increase competition between agents and landlords, which could drive lower costs overall and a higher quality of service for tenants.

Summary

The Tenant Fees Bill builds on the government’s work this year to protect tenants and landlords through the introduction of new rogue landlord database, banning orders for rogue landlords and property agents as well as new code of practice to regulate the letting and managing agents sector. For all landlords who already abide by the current legislation and who treat their tenants fairly the changes will unfortunately only be visible in their year end profits. For all landlords, tax and financial planning and the peace of mind that it brings is paramount. Contact us now for professional impartial expert advice.

Join our Newsletter

Subscribe and get the latest updates about inheritance tax and Estate Planning into your mailbox.

We help people with over £1 million in current assets pay ZERO in UK inheritance tax

One stop comprehensive specialist advice - Tax, financial planning and legal advice service with 18 years experience.

What our clients say
Read our 159
    
reviews

"It is gratifying to finally come across an adviser who gives sensible ongoing advice which is very client focused."

Frank Hibberd

Retired gentleman

"It is nice to know that we can now be certain that our daughter will inherit our money without giving a large slice of it to the government ."

Tony & Sue Perriss

"Everyone's situation is different but having an initial discussion with Charles has really helped me personally navigate what can be a daunting subject."

Bobby Chadda

"I particularly want to thank you for the open and transparent manner in which you have serviced my tax planning needs since I first met you seven or so years ago. In arranging my tax planning through you, I have confidence"

Michael Mahon

Retired gentleman

"Charles was really helpful from the outset and quickly clarified our situation for us... I have used Bluebond for  IHT and other tax advice and they have been very helpful with both. Charles is a very experienced and knowledgeable individual and I highly recommend Bluebond's services."

Sam Attenborough

Retired gentleman

I have used Bluebond for setting up a discretionary trust for my children as well as inheritance tax and estate planning for my home and  other properties. Having searched for years, it was only after meeting and speaking with Charles that I felt confident enough to take these next steps, and I'm very glad I did. His ability to explain complex issues in simple terms and walk you through every step of the process is quite simply unparalleled.

Imran Qureshi

Excellent and comprehensive advice concerning all things financial in one place. Enthusiastic, Educational, Expert, value oriented, Professional and Polite are adjectives that come to mind as well as great attention to detail.

Deirdre Buckley

Inheritance tax is a minefield. Charles de Lastic of Bluebond Tax Planning is the best in the business at helping you to chart the path that is right for you to ensure your estate is structured in the most tax efficient manner.

Nicholas Dickinson

Charles provides clients with valuable insights that clearly demonstrate expertise built over the years. Charles and his team guided us through a estate planning journey and then addressing complex Inheritance Tax matters. They have been very transparent with their advice and cost. Overall an excellent service. Highly recommended

Shailesh Karia

The information contained in this web site is for UK consumers only.  Like most firms of solicitors and accountants, Bluebond Tax Planning is not regulated by the FCA. The content of this website does not constitute FCA regulated financial advice and all content is provided for general information purposes only. Bluebond is not responsible for any action you may take as a result of information on this site. All advice will be delivered on a personal basis once we fully understand your situation and our client agreements have been signed.

Copyright © 2024 Bluebond.co.uk
-
Copyright Notice
-
Legal Disclaimer
-
Terms & Conditions
-
Privacy Policy