Selling up and increasing rent seen by landlords as the solution for rising tax bills
Landlords who have seen their tax bill rise see selling property, increasing rents and reducing borrowing as their main options to cope with the change, the latest private rented sector report suggests.
Some 58% of landlords saw an increase in the 2017/2018 tax bill with the increase on average some £3,039, with a third saying this was higher than expected.
The trends report from Paragon, covering the first quarter of 2019 and which tracks the opinion and experience of over 200 landlords across the UK, also found that landlords with three or more properties were more likely to report an increase in their tax bill than those with smaller portfolios.
While over 60% of landlords confirmed that the change in their 2017/2018 tax bill was as expected, some 33%) said it was either a little or a lot more than expected.
Some 49% of landlords who reported a higher than expected increase said they would make changes to their portfolio as a result, with 24% considering selling property, 20% looking to increase rent and 19% to reduce borrowing.
The report points out that mortgage interest tax relief for buy to let landlords is being phased out over a four-year period and replaced with a basic rate tax credit. In the 2017/2018 tax year, landlords could deduct 75% of mortgage interest costs from rent. This is reduced to 50% in 2018/2019 and it will fall to 25% in 2019/2020 and then to zero.
‘These figures provide early insight into how the tax changes impacted landlords in the first year of implementation. The January tax deadline was the first real data point for measuring change and it’s clear that landlords are continuing to adapt their approach as the transition progresses,’ said John Heron, Director of Mortgages at Paragon.
‘The fact that almost one quarter of landlords intend to respond by selling property is bad news for tenants, impacting supply to the sector, driving rental inflation and ultimately making it more difficult for those that rely on the UK’s Private Rented Sector for a home,’ he added.
Meanwhile, a new piece of research has found that the number of London landlords exiting the market in February 2019 was 125% higher than the national average. The report from the Association of Residential Letting Agents (ARLA) revealed that agents has nine buy to let properties on their books in London compared with a national average of four.
ARLA chief executive David Cox explained that landlords have faced continued legislative change coupled with increasing costs over the last few years, and many are either having to pass the costs on to tenants or exit the market.
He pointed out that in December 2018 some 78% of ARLA members predicted that the number of landlords operating in the private rented sector would decline this year, as they are driven out by rising costs.
‘This trend is snowballing in London where, due to the capital’s higher costs, landlords are struggling to make ends meet. This means tenants will continue bearing the brunt, as competition for good quality properties increases, and rent costs rise,’ he said.