NEARLY six out of 10 landlords saw their tax bill rise in 2017-18, and many were unpleasantly surprised by the increase, according to a new report into the sector from buy-to-let mortgage lender Paragon.
Its PRS Trends Report for the first quarter of the year surveyed more than 200 landlords across the UK. It found an average annual increase in tax of £3,039 among those landlords who reported higher tax bills.
While 60 per cent of landlords said the change was expected, one third said it was either a little or a lot more than they had anticipated.
Almost half of those surveyed said they would make changes to their buy-to-let property portfolios as a result, with 24 per cent planning to sell properties, 20 per cent increasing rent, and 19 per cent reducing borrowing.
Landlords’ profits have been hit by extra stamp duty charges and the scaling back of mortgage interest relief. 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 2017-18 tax year, landlords could deduct 75 per cent of mortgage interest costs from rent. This was reduced to 50 per cent in 2018-19. It will fall to 25 per cent in 2019-20 and then to zero, said Paragon.
“These figures provide early insight into how the tax changes impacted landlords in the first year of implementation,” said John Heron, director of mortgages at Paragon. “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.
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“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.”
However, first-time buyers have been able to take advantage of this trend by buying up the properties tax-hit landlords are divesting from their portfolios. The latest mortgage lending figures from UK Finance show that mortgage and home purchase approval rates are rising, although remortgage approvals fell.
Gross mortgage lending across the residential market in February 2019 was £19.1bn, an annual rise of 2.5 per cent.