The changes to mortgage interest relief (MIR) have led a quarter of buy-to-let landlords to put in place plans to sell up, while 20% are setting up limited companies in response, according to research by the Residential Landlords Association (RLA)
Its review of developments in the BTL market in 2016, based on quarterly surveys of 2,883 landlords across the UK, concludes that the current reforms to taxation of the sector have had a negative impact on the future investment decisions by landlords.
The majority (77%) of landlords reported a raft of recent changes, including the additional stamp duty charge on a second home and reductions to the wear and tear allowance, will negatively impact on rental income, while 67% of landlords say they will have reduced profitability due to changes to MIR alone.
RLA statistics suggest profitability will reduce by 34% on average, and also warns that 36% of landlords reported the removal of MIR would result in them making a loss on their investment.
As it is, 78% say they have been deterred from investing in more BTL properties because of changes to the taxation regime. The majority of landlords (48%) reported that changes to mortgage interest relief will have the biggest impact on their finances. This is followed by the removal of wear and tear allowance for 18% of landlords.
One in four have either sold or are in the process of selling their properties. From 2017 to 2020 the amount of BTL tax relief individual landlords can claim back will be progressively cut from a maximum of 45% to 20% for top rate taxpayers, but this change does not affect limited companies, and there is also a new a tax-free dividend allowance of £5,000. RLA research suggests one in five BTL landlords are planning to move their properties into a limited company investment vehicle.
RLA’s 2016 review is here.
The RLA review of finance and tax is here.
