Landlords see reduced tax breaks in George Osborne’s Budget

Many buy-to-let landlords will face a higher tax bill from April 2017. In his first Budget Announcement for this Conservative government, George Osborne signalled his intention to make interest payments for buy-to- let landlords less generous. Currently, landlords can deduct up to 45p per pound but from April 2017, these income tax deductions will be diminished. Tax relief has not been abolished altogether but will see this relief capped at the basic income tax rate.

There are an estimated 1.4 million private landlords in the UK, many of them individuals who have turned to property as an alternative to a pension. With final salary pensions increasingly rare and poor returns on the stock market and on savings, many people have invested their life savings into residential property. Asking landlords to pay greater taxes will have a dramatic effect on the income of many pensioners and those approaching pensionable age.

The move is likely to lead to a rise in rents to cover the extra costs and a restriction in rental supply as landlords sell properties. The government has already stated that greater investment is needed in the private rental sector (PRS) with one recent report estimating that a further £1.4 trillion will need to be invested into the PRS by 2035 to meet demand. With the UK population expected to grow by a further 12 million over the same period, Osborne’s tax plans are unlikely to encourage further investment.

What’s more the move unfairly targets UK investors as the new measures will only affect those with personal UK incomes greater than £31,785 and will not affect properties owned through companies.

“They say the road to hell is paved with good intentions,” comments Marc von Grundherr, Lettings Director at Benham & Reeves Residential Lettings, “A number of charitable organisations have been hounding the Treasury saying it is inherently unfair that landlords have tax relief on their mortgages while private homeowners do not. While Osborne’s move was an attempt to redress this unfairness, it actually does no one any favours. It will decrease incomes for many pensioners, making them more reliant on the state and will inevitably lead to an increase in rents, making it more difficult for tenants to save for a deposit. Most of us in the property industry thought that sensible policies would follow in the wake of a Conservative government but this is yet another example of politicians trying to profit from property to the detriment of the overall economy.”