Tax Relief Changes Encouraging Reduced Buy to Let Investment

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Recent government buy to let tax relief changes are encouraging some landlords to reassess the viability of their portfolios and consider selling properties to minimise the effect on their income.

The tax relief changes are among several new regulatory changes that are causing significant stress in the buy to let sector. A new survey from propertypriceadvice has shown that many landlords are feeling apprehensive about the future of their investments. The burden of the potential rise in interest rates in May 2018 is causing landlords to consider selling up parts of their portfolio.

A further complication is the considerable number of two-year fixed-term mortgages set up shortly before the government made changes to stamp duty. Many landlords are will now be forced to compete in a market with profits declining and lending criteria has been tightened.

Two thirds of the landlords surveyed are strongly considering selling at least one property in their portfolios. One in nine landlords are looking to sell all of their properties. One in ten are already actively selling a buy to let investment property.

However, almost 20 per cent of landlords surveyed have not yet looked into the reduction. This means that the news could prove an unwelcome shock.

As landlords become increasingly unable to offset mortgage interest, rents will rise, harming tenant finances. Furthermore, landlords leaving the market will create a dearth in housing supply.

Peter Sherrard of website propertypriceadvice, spoke out about the findings of the research: ‘The pressure continues to mount on buy to let landlords, who provide vital housing options for renters throughout the country. Coupled with the remortgaging crunch, it’s no wonder buy to let landlords are thinking about exiting the market in droves. The current tax relief regime means that, unlike for any other investment, landlords are only able to claim tax relief on a percentage of their mortgage interest – in April, this will drop from 75 per cent to 50 per cent. However, because this only applies to individuals, companies that deal in property can fully offset their expenses. This change can also push basic-rate taxpayers into the higher-rate bracket, as their mortgage interest suddenly counts as income.’

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