Following the introduction of new tax rules for buy-to-let landlords there has been a rise in the amount of single property landlords that will be pushed into the higher income tax bracket, according to the National Landlords Association (NLA)
Research from the NLA has shown that the proportion of single property landlords that believe they will be moved up a tax bracket has doubled since the end of 2016, with around 16% of landlords now saying that their tax bracket will change – a rise of 7% compared to Q4 2016.
By the time the tax changes are fully implemented in 2021 landlords’ mortgage finance costs will count towards their taxable profit. Currently the average annual mortgage finance costs for a single property landlord stands at £5,600.
Therefore those currently earning just below the upper income tax threshold of £45,000 could be moved into the higher bracket of 40%.
Single property landlords represent 62% of the UK’s landlord population – around 1.5 of the estimated 2.3 million. These new changes are expected to affect 368,000 homes if landlords are forced to sell up as a result of higher tax bills.
According to the NLA, landlords would have to increase their rent by 11% to continue to make a steady yield from the property which could mean £116 per calendar month more for the average rental property.
Richard Lambert, chief executive officer at the NLA, said: ‘A fifth (2%) of landlords with just one property do not make a profit, and over the next few years those bumped up a tax bracket will find that their ability to continue to provide good quality housing will be seriously affected.
‘More and more families and young couples are making their home in the private rented sector because they cannot either access social housing or afford to buy their own home. Affected landlords will have the choice of either increasing rents or selling up – so either way it’s the people they currently home who look likely to suffer the most as a result of this damaging tax change.’
According to HMRC’s UK property transaction count for April 2017, the number of residential property transactions decreased by 3.2% between March and April 2017. April’s seasonally adjusted figure is 20.3% higher compared with the same month last year. However, direct comparisons of residential transactions between April 2017 and April 2016 should be avoided due to the unusually low level of transactions in April 2016. This was associated with the introduction of the higher tax rates on additional properties introduced in this month.
HMRC’s UK Property Transaction Statistics for April 2017 is available here.
