25% Rental Hike Predicted
Landlords were faced with a tax increase 12 months ago on second homes and investment properties, however the government is hoping to make it even less profitable as more changes come into effect in April 2017.
The Government hopes the new taxes will free up the property market, as more and more landlords to decide to exit the market. However, experts fear that landlords will pass on new tax bills to tenants, increasing their monthly rent by as much as 25%, restricting the rental market even further.
What has changed for Landlords?
A Landlords that collected £10,000 / year in rent, and paid £9,000 in mortgage interest, would have paid tax on £1,000 under the previous tax rules.
Between now and 2020, tax relief will reduce until the full amount is taxed, less a 20% credit on the mortgage interest.
Therefore, a higher rate tax payer will pay £2,200 on that £10,000 rental income instead of £400 previously.
Furthermore, if the full rental income has to be declared as income, this will automatically force many landlords into the higher rate tax band, making their rental property a very much less profitable business. It is this cut in profit, or extra tax cost that is likely to be passed onto tenants.