The budget is always an important event, regardless of the events surrounding it like tube strikes for instance, it never gets lost in the surrounding noise.
For the property investor out there, it probably managed to capture your attention and maybe let you spend the next few hours on the internet trying desperately to work out what it actually means.
I’m referring to the section on restricting finance cost relief for individual landlords.
The essence of the legislation is that relief is being cut to 20% from 40 or 45% as it’s been in current and previous years.
Put simply, if you are a basic rate tax payer these changes will have no impact. If you’re a higher rate or advanced rate tax payer you will pay the equivalent of 20 or 25% of your current interest or finance charges in tax.
As I’m not an accountant, here is the HMRC’s explanation on exactly how the tax changes will work.
Dorian Gonsalves, Director (Commercial and Franchising) at Belvoir commented that; “This is quite a surprising move from the Chancellor and one that is likely to deepen the housing crisis, from the point of view of tenants who are desperate for affordable homes and more housing in all parts of the UK. Any change that increases costs for landlords, or reduces the supply of new or existing housing stock, is somewhat strange and unnecessary at this present time”.
“Only one in three new buy to let properties are bought with a mortgage. For two out of three buyers the changes in tax relief will make no difference whatsoever. Across the UK, less than half of our housing stock is mortgaged. The Chancellor’s attempt to discourage heavily geared new buy to let landlords could have been done in a much better way. Professional landlords with significant portfolios operating on tight margins will be hardest hit, as will those with higher value BTL properties with higher mortgages. Smaller BTL landlords, especially those with unencumbered properties, will reap the best rewards going forward, especially if demand for rental properties increases which it’s likely to do when these recent changes begin to take effect”.
“As a landlord myself, I’m not phased by these changes. They’re being introduced over a long period of time and BTL will continue to benefit from inflation, rent rises and capital appreciation. If the latter two fall away, conditions will become difficult for landlords but this is highly unlikely”.
“Most landlords we deal with are long-termers who are financially stable and well-prepared for most eventualities”.
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