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Published On: Tue, Aug 18th, 2015

Property Tax Relief to Be Cut by 2020

According to the 8th July Summer Budget, tax relief is expected to drop from 40 and 45% to around 20% for wealthier landlords by April 2020. Speaking in the House of Commons, Chancellor George Osborne announced plans for introducing a more level playing field between those buying a house with plans to let and those buying a home to live in.

The chancellor stated that buy-to-let landlords currently have a huge advantage on the market as they are able to offset their mortgage payments against their income unlike homeowners. The wealthier the landlord, the more tax relief they are eligible for.

Increase in Buy-to-Let

For the wealthiest landlords, each pound of mortgage cost incurred returns them 45 pence from the taxpayer. Because of this, growth in buy-to-let properties has rapidly increased, with 15% of new mortgages being accounted for by landlords. The Bank of England has recently warned that these figures could pose a risk to the nation’s financial stability.

Planned Actions

Chancellor George Osborne has promised to take action regarding the situation, but will do so in a gradual, proportionate way by retaining mortgage interest relief for residential properties but restricting it to the basic rate of income tax. These changes are planned to be phased in over a four year period commencing in April 2017.

As explained in the Budget document, these plans are intended to reduce the distortion that the taxing of property has on investment and will mean that individual landlords are not treated differently in regards to the amount of income tax that they pay.

Photo/donkeyhotey  donkeyhotey.wordpress.com

Photo/donkeyhotey donkeyhotey.wordpress.com

Kensington Mortgages’ head of market and communications, Alex Hammond, stated that the cuts in mortgage interest tax relief to the basic rate for those investing in buy-to-let properties should be considered by anybody planning on becoming a landlord. He says that the reality is that nobody should be investing simply for the tax relief, although he agrees that everybody likes a generous tax break.

After the Budget

Buy-to-let has been a massive success, and both Chancellor Osborne and Alex Hammond agree that this should also be the case after the Budget. Specialist lenders are very committed to the buy-to-let market regarding both lending and giving financial property advice, and there is still a lot of room for expansion.

In addition to the tax relief cuts, the government plans to reform how the landlords of residential properties are accounted for any costs incurred in both improving and maintaining the properties that they let.

Currently, landlords of residential property are able to deduct 10% of their rent from their profit to account for general wear and tear of the property, however from April 2016 there are plans in place to replace this amount with a new system which will enable all landlords of residential property to only deduct any costs that are actually incurred.

Are you currently a landlord of a residential property? How do you think that these new changes announced in the Budget of July this year will affect you? We’d love to hear your opinions on this in the comments.

Guest Author: Keith Sullivan

On the DISPATCH: Headlines  Local  Opinion

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