Landlords across the country are currently facing a time of uncertainty. The arrival of the chancellor’s stamp duty tax caused the cost of properties to spike last month, and with the mortgage interest relief for tax on rental income being slowly drawn back in April next year, the lucrative season the landlords have been enjoying may be coming to an end.
You might be thinking about selling up and packing in the landlord life altogether, and who could blame you? Are these changes just a brief blip on a sector which has seen continuous growth recently, or is it an omen of worse things to come?
Stamp Duty
Many financial and property experts have advised that the 3% rise can be offset by raising the rent and price of properties accordingly, although that was the point of the 3% at the beginning of the year.
The arrival of Stamp Duty in April led to a massive rush in prospective landlords closing deals on properties, in an attempt to dodge the 3% rise.
The amount of Buy to Let mortgages purchased in March 2016 were up by a massive 226%, from 8,800 in March 2015 to 28,700, according to the Council of Mortgage Lenders.
Income Tax
April 2017 will see the arrival of the Mortgage Interest Tax Relief. Landlords have the opportunity to claim this, however it is capped at 20%, meaning anyone paying a higher rate will miss out.
Previously all mortgage interest could be offset against rental income. Landlords would then pay income tax at the marginal rate on the profit in-between.
From April 2017, the tax position will change towards a version that is capped at the basic rate tax from 2020, which is currently set at 20 per cent.
Many campaigners are arguing that this is an unfair system as the majority of landlords are 40%-45% taxpayers. This will represent a large financial hit. They also claim that the current system of being able to deduct finance costs is in-line with general business taxation principles, where tax is paid on profits. They claim that landlord’s will, in the future, end up in part paying tax on revenue.
It’s not looking positive for landlords at the moment so it’s understandable that many might be looking to sell their Buy to Let properties to make a profit, however it isn’t all doom and gloom. The Bank of England believe that whilst the arrival of these new factors will make a dent, Buy to Let is still a worthy investment, which will be worthwhile once landlords become used to the new status quo.
If you're looking for landlord advice then why not visit our website? we've got plenty of helpful tips and we also provide a first class lettings service. Get in touch with David Conway & Co today - 020 8422 5222With uncertainty surrounding the buy to let market, we discuss if it's time to cash in on your investment.
