An interesting report from mydeposits has revealed that 44% of landlords are looking to make changes as a direct result of tax changes imposed on the sector during the last 18 months.
Since April of 2016, three large tax changes have impacted on landlords. Buy-to-let investors have faced an additional 3% Stamp Duty surcharge, while there was also the abolition of ‘ landlords ability to claim a 10% tax break for ‘wear and tear.’
The third significant change came with alterations to mortgage interest tax relief, brought into force from April 2017. This means that by 2020, when the scheme is fully rolled out, landlords will only be able to claim a basic rate of tax back from their tax charges.
Worryingly, 26% of respondents to the survey said that they were unaware of the changes to mortgage interest tax relief. 23% said they were unaware of the alterations to Stamp Duty.
86% of respondents to the survey said they owned between one and four rental properties, with a further 8% having between 5-10 properties. 21% replied that the tax changes would not affect their buy-to-let business, but 25% said they will need to raise rents.
10% said that they are looking to sell-up for good, with 9% switching from a managed service through a letting agent to self-managing.
50% said that they have no intention of leaving the sector, nearly 25% plan to sell up during the next 5 years.
Tony Gimple, Founding Director of Less Tax for Landlords, noted: ‘Landlords should be running their buy-to-let portfolio as a business regardless of tax changes, and those forced out of the market will be the ones who are too highly geared with too little yield. Many landlords are trying to do everything themselves and often following unreliable or out of context information, whereas once they are professionally educated on what their options are, many choose to remain landlords and go on to prosper.’
Eddie Hooker, CEO of Hamilton Fraser, parent company to mydeposits, also said: ‘The results of this survey are particularly interesting for the short to medium future of the private rented sector. Around 25% of those who responded were unaware of the changes to the tax regime on their existing portfolios which shows that more is needed to be done to help educate the market and help prepare landlords for the changes to their personal tax liabilities over the next few years.’
‘Even more poignant however, is the suggestion that more than 50% of landlords are considering changing their behaviour to safeguard their income by either increasing rents, turning to self-management or even selling up completely. With all the well-meaning efforts that are being made in the market to make the whole renting experience a better place for both landlords and tenants, there is now a clear danger that supply could be restricted with the knock-on effects this may cause. The right tax planning advice and income protection strategies are absolutely crucial.’