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New Landlord Tax Law

Posted by iLet Properties on January 30, 2016
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New Landlord Tax Law

Tax law is inevitably complicated. With the new changes coming in, if you think you may be affected then you need to get financial advice as soon as possible. Do not act on any of the information in this article before receiving this professional advice.

The Basics:

  • Landlords with large mortgages and who own their properties will pay more tax. There is the risk that this will wipe out any profits in their entirety and may well make a Buy to Let property un-financially viable.
  • Landlords who do not have a mortgage are unlikely to be unaffected, but do check here still.
  • Landlords who are likely to be hit the hardest are likely to be the middle-class savers who have invested in Buy to Let properties as a means to supplement their income. This scenario will increase the likelihood of rents being increased by a substantial amount to cover this new rise in tax or property being sold, as it will no longer be viable to rent it.

Why shouldn’t landlords have to pay more tax?

Some groups may see landlords having to pay more tax as a good thing; but is it? This all depends on what the individual Buy to Let landlords decide to do. Mostly, landlords affected will need to make changes if they are to continue being able to afford to be landlords, then there are only two real options:

  • Find a way to reduce the amount of tax they have to pay
    • In cases of landlords owning multiple properties, some will be able to sell some of their property portfolio, enabling some of their other properties to become mortgage free
  • Raise rent. Obviously not a good outcome for their tenants and may make finding tenants in the future difficult. With raised expenses come other issues with being a landlord, such as the potential unwillingness to make minor, non-urgent repairs.

Some landlords will chose to sell. Some property is just great for the Buy to Let market and not so good for homeowners. This may make property difficult to sell and the landlords may have to take quite a drop in price to achieve the sale. This could well lead to a drop in available rental properties on the market. ‘Small time landlords’ own many rental properties with just one or two properties and generally with large mortgages. These landlords just will not be able to afford these tax rises.

What about the landlords who own their Buy to Let properties outright?

This new tax law will not affect them! The new tax law will only affect those landlords who have a mortgage on their property. The upshot of this change in tax law is that the landlords who have just one or two properties as an investment will be much worse off than the landlords who own the properties outright. There is the strong possibility that driving out the small time landlord will increase rental fees.

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