Landlords under attack from government tax changes are looking to act before they are ravaged by the Chancellor’s latest tax grab.
The amount of loan interest landlords can set against their rental income is to be drastically reduced following last year’s Summer Budget bombshell that was a shock to many buy-to-let property owners.
As anger subsided into trying to combat the effects of the changes before they happen, those landlords choosing to do nothing could be “sleepwalking” into financial loss, warns top 40 accountants Bishop Fleming.
Landlords who have borrowed heavily to finance their buy-to-let properties stand to lose the most, as the interest they can set against their income will be restricted to just the basic rate of tax.
So landlords paying 40 per cent or 45 per cent tax will now find they only receive 20 per cent relief on their borrowings by 2020.
This so-called “turnover tax”, due to landlords in future being taxed seemingly on their rental income rather than profits, could also force many basic-rate landlords into higher rate or additional rate tax.
Some landlords could see a 300 per cent increase in their tax bill.
“Such a massive tax hike could compel landlords to leave the rental sector altogether,” warned Tax Partner, Alex Robins.
“But there are other options, which could include selling properties to cut borrowings, or forming a company to avoid the tax altogether – companies are not affected by the change – though such a move would not be without its tax penalties,” he added.
Many landlords may have to raise their rents to cover the tax cost, meaning tenants will have to bear the brunt of the change.
Two landlords have even taken it upon themselves to fight the change in the courts.
On top of this blow, the Summer Budget also scrapped the 10 per cent wear and tear allowance landlords claim for furnished properties, and the Chancellor’s Autumn Statement announced a three per cent surcharge from April 1, this year on landlords who buy additional residential properties.
From 2019, landlords will also have to pay any capital gains tax they owe within 30 days of selling a property they had used in their rental business.
A further assault has come from the Home Office which from February 1, this year has forced landlords to check the immigration status of any new tenants, or face a penalty of up to £3,000 and in some cases imprisonment.
Mr Robins added: “Landlords rightly feel under attack at the moment from a government they thought was on their side. Many have seen buying buy-to-lets as a safe investment for their future retirement in the face of forthcoming pension tax reforms. These landlord tax changes will lead to distortions in the property market and are contrary to the government’s desire that people should invest in their futures. The effects of the Chancellor’s announcements will be felt for many years to come.”
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