A survey of over 600 UK landlords from Simply Business, one of the UK’s largest providers of small business and landlord insurance, has found one in three (33%) landlords saying that their properties are not as profitable as they once were due to the reduction of buy-to-let mortgage tax relief.
The mortgage interest tax relief landlords could claim was gradually reduced by 25% each year from April 2017 and reached zero in April 2020, when buy-to-let mortgage relief was replaced with a 20% tax credit. The 2021-22 tax year is the second full tax year in which landlords only get this credit.
The controversial tax changes reduced profits for many landlords, who were previously able to deduct all of their mortgage interest from rental income and pay tax solely on the profits.
32% of landlords surveyed said rising taxes have been one of their key challenges, while 11% said they’ve had no choice but to pass the cost of tax increases on to their tenants in the form of higher rents.
For 16% of landlords, the impact of the buy-to-let mortgage tax changes caused them to sell a property or consider selling one.
Government plans to introduce a national landlord register and scrap Section 21 evictions, leads half of landlords surveyed to say they’re worried about further regulation of the rental market, and 58% claim that confusing and rapidly changing government legislation is the biggest challenge they currently face.
45% of those surveyed said that the rising cost of being a landlord is the most significant threat to the future of the rental market. Almost one in five (18%) said they’re worried about the knock-on effect it could have on their ability to maintain their properties.
Despite the impact of the buy-to-let tax changes, 22% of landlords said they would reconsider selling their properties if they had more clarity on legislation and regulation from the government.
Just 18% remain optimistic about their ability to generate income and almost a third said they expect to see their rental yield increase by up to 5% this year.
Meanwhile, almost a quarter (23%) of landlords said they’re planning to buy another property this year.
Alan Thomas, UK CEO at Simply Business, commented:
“Contributing over £16 billion annually, if a wave of residential landlords were to sell up then it would have a huge impact on the UK economy.
“What’s more, with landlords offering much-needed accommodation to over 4.4 million households, the hit to our communities could be devastating.
“It’s crucial that we recognise both their importance, and the support required by landlords to manage the challenges they face – including changes to government legislation, such as the reduction of buy-to-let mortgage tax relief.”
The full survey results are here.
See also today’s story: Landlords claimed £18.5bn in tax relief in 2021.
Is it just me, or is calling it “mortgage interest tax relief” very misleading? Almost like there is a political agenda?
Previously Landlords had to only pay tax on the profits they made. That is the rent they took, minus the costs they incurred. One of the biggest costs is the interest-only part of the mortgage payments on the buy to let property.
Now Landlords cannot say that the interest-only part of the mortgage is a cost. This means that Landlords pay tax even if they made no profits. This is unlike any other industry. Everywhere else interest on loans is a legitimate cost and should be able to be set against rent to reduce profits, thus reducing tax.
Treating Landlords unfairly like this discourages, and often prohibits, good landlords from buying/building/renovating/converting property for tenants because the tax bill means they can’t afford the loans required. This means less accommodation for tenants, giving tenants less choice, forcing rents up.
If you want lower rents and better conditions for tenants, give landlords a genuine tax incentive, that will encourage more landlords into the market who will compete with other landlords to attract tenants by lowering rents and improving standards. A tax on Landlords is a tax on tenants.
All politicians seem to care about is if they can get their hands on that tax money. They don’t care about the tenants. They invent clever rhetoric, twisting reality, turning: “allowing landlords to claim the interest-only part of the buy to let loan as a legitimate cost” into “giving landlords a tax relief.”
Politicians imply that landlords take housing stock away from first-time buyers, which is not generally true as landlords add to the housing stock by building, converting large houses into flats and commercial into residential and bringing uninhabitable houses back into the market by renovating them.
The dishonest use of rhetoric is to paint landlords as the bad guys, to justify taxing them unjustly, which ultimately harms tenants.
Politics of envy, economically illiterate, virtue signalling, self-serving or downright evil. Politicians should not be allowed to meddle in a market as important as the housing market.
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We have seen rents increase quite a bit to counter the government measures to penalise landlords. This continual landlord bashing is doing nothing to reduce rents and increase the supply of property. As a landlord, I have seen rents increase by about 10/15% in the last 5 years if not a bit more. As an agent, we have seen about 10% of our landlords leave the market. I do feel sorry for the tenants as they are the ones that are feeling the brunt of this. What everyone seems to forget is that landlords are businesses, not charities.
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Your point is well made, but you overlooked the fact that a Ltd Co can still claim the mortgage interest element, because it is a valid business expense.
Unincorporated landlords will always be an easy target because they are not subject to normal business accounting rules.
I suspect this government’s objective is to replace those landlords with large corporates investing in build to rent.
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