More than 400,000 landlords in the UK who currently pay the basic rate of tax will find themselves forced into a higher tax bracket from April 2017, research has found.
According to a survey for the National Association of Landlords (NLA) while some 22% of the estimated two million landlords in the private rented sector will find themselves propelled into the higher rate, all landlords are in danger of seeing their tax rise regardless of what they pay currently.
The changes mean that from April 2017 landlords will no longer be able to deduct mortgage interest payments or any other finance related costs from their turnover before declaring their taxable income.
Currently, mortgage interest payments are one of a number of expenses that landlords can deduct as a business cost, including insurance premiums, letting agent fees, and maintenance and property repair costs.
The move, which was announced by previous Chancellor George Osborne, will be phased in over four years but it is hugely unpopular. A challenge in the High Court failed and now landlords and industry bodies are lobbying the Government to abandon the change. They hope that new Chancellor Philip Hammond will take a different view and make a positive announcement in his autumn statement next month.
The NLA says that while around 440,000 landlords who are on the basic rate will be forced into a higher bracket, all landlords face higher tax bills with the size depending on how many properties they have in their portfolio and their value.
It has found that some 31% of landlords in Central London, 30% in the East of England and 28% in the West Midlands could be particularly hit.
The amount by which landlords will be affected will depend on their personal circumstances, including whether or not they generate income from any other sources. Landlords’ tax liability will increase depending on their existing annual mortgage interest payments.
For example, payments for those with a single property is currently £3,600, for two or three properties it is £8,600, for four to five properties it is £16,300, for six to 10 properties it is £18,200, for 11 to 19 properties it is £24,900 and for 20 or more properties it is £38,000.
The NLA has met with Housing and Planning Minister Gavin Barwell to discuss the matter and it also hopes to meet Financial Secretary to the Treasury, Jane Ellison, in the near future after Chancellor Phillip Hammond responded to the association’s request to discuss the forthcoming changes, and last year’s stamp duty surcharge on addition property purchases.
The Financial Secretary is responsible for strategic oversight of the UK tax system including direct, indirect, business, property and personal taxation.
‘When the Government announced these changes last year, it claimed they would only hit a small proportion of higher rate tax payers. We now know that is complete tosh,’ said NLA chief executive officer Richard Lambert.
‘The Government must look to amend these tax changes and minimise the impact on landlords and their tenants, something that could easily be achieved by applying the rules to only new loans written after April 2017,’ he pointed out.
‘Unless this happens, landlords will face an impossible decision of whether to increase rents and cause misery for their tenants, or to sell-up, and force their tenants to find a new home,’ he added.
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