Business

Buy-to-let under threat

WITH plans to scrap buy-to-let tax relief due to come into effect next April, many investors are considering selling up. But how will the proposed change impact landlords and investors?

According to research by the Residential Letting Association, a quarter of buy-to-let investors will sell up and ship out if the proposed new tax changes are introduced.

However, the news isn’t good for renters either as 56 per cent say that they will increase rents to cope with the changes in tax.

So the rental market could face a double whammy with properties going on the market, thus potentially bringing the prices down, whilst first time buyers, currently renting whilst they save will find themselves potentially falling further behind. But this could be offset by increased availability of suitable properties due to landlords taking themselves out of the equation.

There is a glimmer of hope however. Philip Hammond will be unveiling his first Autumn Statement on Wednesday and there are calls from several groups for him to reverse the decision that he has inherited from his predecessor.

What will the tax changes mean in real terms? Well, the policy was touted to be a ‘leveller’ that put home-buyers and investors on a more even keel but in reality it could help to claw back some of the £6.3 billion that the Mortgage Interest Relief is reported to have cost the chancellor.

Mortgage Interest Relief was withdrawn from home-owners 16 years ago but landlords have continued to receive the relief.

The new laws could make it difficult for some investors to make a profit as, if you’re at the top end of the tax scale, it almost doubles the effective cost of borrowing.

With the rules the way they stand currently, with the 45 per cent tax relief you will only really pay £55 in interest payments. If the new changes come in you could see this rise to £80 by the year 2020. It’s not inconceivable that landlords could end up paying more in tax than they actually make in profit.

Most people will be aware that if you’re already a Higher rate Tax Payer you will be affected. What is probably a little ambiguous is that if you’re a basic rate tax payer, close to the higher rate band, you will be very easily pushed into this higher rate band and will equally be affected.

There is a common misconception that this won’t affect basic rate taxpayers which is a half-truth, half lie as it may not affect you but it may well affect you.

If you are in any doubt how this may affect you then, as always, seek independent financial advice and hope for fair weather in the autumn statement.

:: Darren McKeever (dmckeever@wwfp.net) is Northern Ireland adviser of Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. For a free, no obligation initial chat about your individual finances, call 028 6863 2692, email info@wwfp.net or click on www.wwfp.net. Follow us on Twitter: @WorldwideFP.