There has been no let-up in the anger expressed by sections of the buy to let sector after Chancellor George Osborne announced that he would restrict the rate of mortgage interest relief.
Currently landlords can deduct their costs, including mortgage interest, from their profits before they pay tax. Therefore high-earners receive tax relief of between 40 and 45 per cent, as it is based on the top rate of tax they pay. This will be gradually lowered to 20 per cent over a four-year period starting in 2017.
In addition, landlords or their agents must prove they have improved or maintained their rental property before they can deduct the costs from their taxed profits. Currently, landlords are permitted to deduct automatically from their profits the equivalent of 10 per cent of their annual rent for wear and tear.
Richard Lambert, chief executive officer of the National Landlords Association says the Chancellor has an “unwavering commitment to homeownership” which “blinds him to the impact of the policies he proposes on the hard-working people he claims to champion.”
The NLA says the loser from the policy will be the tenant, not the landlord, as rents will rise up to £840 per year or £70 per month.
Meanwhile rival landlords’ body the Residential Landlords Association says the measure creates “damaging uncertainty for the private rented sector.”
It claims that although HMRC says only 20 per cent of landlords will be affected, the RLA insists that many of these, if not most, will have more than one property with an interest charge against each.
RLA chairman Alan Ward says that “on the face of it the impact could be to push up rents as landlords have to recover their extra costs.” He says the government should “hit the pause button on these proposals and undertake a comprehensive and open consultation and assessment of what its measures will mean.”
Meanwhile the Institute of Fiscal Studies, an independent business and financial think-tank, says Osborne is "plain wrong" to remove some tax breaks from landlords, because they are already taxed more heavily than homeowners who live in their own properties.
Article courtesy of Letting Agent Today | Sign up for Letting Agent Today newsletter | Get this news on YOUR site!