LANDLORDS were given a nasty shock in Chancellor George Osbornes emergency budget earlier this month.
In his first budget given as a Conservative rather than coalition chancellor, Osborne surprised property investors by scrapping mortgage interest tax relief at the higher levels.
Buy-to-let owners were told they are to be stripped of the right to claim the tax relief at the 45 and 40 per cent tax bands.
Kicking in from 2020, the change could have a significant impact on owners of multiple properties or those relying on rental income to pay outgoings.
The surprise move caught landlords off guard in a budget aimed at encouraging home ownership rather than renting.
Bank of England Base Rate
With the Bank of England base rate still at its historic low of 0.5 per cent, the impact is likely to be minimal in the immediate future as returns on other financial investments are also still low making property an attractive bet.
But with the base rate anticipated to begin an inevitable upwards trend from late next year, property ownership could become much less attractive to investors or even cause some buy-to-let owners to sell up.
Property owners whose current income is below the higher tax band will be unaffected as they can only claim the value of the interest part of their mortgages against the 20 per cent tax on income they pay anyway.
But investors who earn in the higher tax bands will find they can only claim the basic rate of 20 per cent on their interest payments.
Investors forced to sell?
Some warn they may be forced to sell up as they seek new investment opportunities for their capital, causing a slump in the number of homes available to rent – causing a crisis in towns and cities where there already a housing shortage as younger people cannot afford to buy.
Landlords groups claim the move is unfair as they view interest as a legitimate business cost which should be claimable against their tax bill like any other cost.
They also point out selling a buy-to-let property means profits are subjected to capital gains taxation and argue the fall in profitability could simply be passed on to tenants in higher rents.
We will have a spreadsheet tax calculator to assess the effects of the Summer Budget tax to send out soon to subscribers of Just Do Property. If you are interested in receiving this please email info@justdoproperty.co.uk
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