If you’re new to the landlord game you may not have realised that the recent Buy-To-Let tax, brought into the UK’s field of vision by George Osborne at the end of last year, will have a big impact on your business. This tax will be phased in between 2017 and 2020.
Here are three things that you really need to get your head around before you jump into the world of real estate:
1: The buy-to-let tax will take away the ability for landlords to offset the interest they pay on their mortgage before paying tax.
Where previously landlords could pay tax on only what was left from the rent coming in, after the mortgage interest was paid, now the entire rent income will be taxed.
When the new tax comes into effect, only landlords who pay the basic rate of tax (20%) will be able to claim tax relief. While some say landlords paying the basic rate won’t be affected by this change, others predict it could force those paying the basic rate into the higher tax rate and therefore losing their ability to claim relief on mortgage interest.
2: Tenants and the housing market as a whole could be affected.
This new tax has the ability to affect not only landlords but tenants and the entire housing market for a number of reasons:
- This may lead to increased rent due to the loss in profits landlords will now be facing.
- Landlords may choose to leave the industry, no longer seeing their properties as profitable enough to continue.
- Lower cost properties may be snapped up by cash-paying landlords, reducing the amount of low cost housing for first time buyers.
- With less profits coming in, less money may be spent on upkeep for rentals, meaning a lower standard of living for many tenants.
- Buy-to-let mortgages will become less affordable, something mortgage lenders will have to take into consideration. Possibly reducing the amount of landlords successful in obtaining a mortgage.
3: You’re still able to deduct allowable expenses from your tax bill.
It’s not all doom and gloom. There are still some allowable expenses you can deduct from your tax bill, meaning more profit for your business. Allowable expenses include:
- Letting agents’ fees;
- Legal and accountants’ fees;
- Buildings and contents insurance;
- Maintenance and repairs to the property (but not improvements);
- Utility bills, like gas, water and electricity;
- Rent, ground rent, service charges;
- Services you pay for, like cleaning or gardening;
- Other direct costs of letting the property, like phone calls, stationery and advertising.
The overall sense that we’re getting is that this new buy-to-let tax will penalise the working class landlords or those starting out in the industry, while very wealthy landlords that don’t need a mortgage will be unaffected. The last few months has seemed overly harsh to landlords, first this harmful tax, then the recent stamp duty.
For more information and to keep up to date with issues concerning landlords check out UKinsuranceNET’s knowledge base. A place where you can understand the new legislations and laws that could affect you and other landlords in the future.
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