BTL tax changes will hit amateur landlords most warns agent

One of Britain’s senior letting agents says the people likely to be hit hardest by changes of the buy to let tax regime are not professional large-scale landlords but individuals who dabble in property investment for a short period through temporary career moves.

Chancellor George Osborne announced last week that from 2017 he would be clamping down on buy to let landlords by removing the right to claim more than the basic rate tax equivalent in relief for mortgage interest. He is also tightening the rules about claiming for wear and tear by allowing claims only for money spent rather than the annual 10 per cent of rental that’s currently allowed automatically.

But Lisa Simon, head of residential lettings for Carter Jonas, says the changes could hit some landlords with an unexpected, and unjustified, penalty.

“Many properties in London and other major centres are owned by people who let them when their careers demand they move elsewhere for a time. They are let by people who want to return but won’t sell up and move because house price inflation would bar them from making the same trip. So they let their home to cover the mortgage and rent in another location while they are temporarily displaced” says Simon.

“Among these people are civil servants - who will also face a one per cent cap on earnings growth - moving away from major centres to advance their careers and who ultimately will want to return home. They now face a shortfall in their ability to pay the mortgage without raising their rents to cover the difference. It will mean they have to rise by more than the shortfall to cover extra Income Tax payments” she warns.

“The loss of a write-down on furnishings and maintenance unless they can provide invoices means that these people will have to suffer wear and tear on appliances and fittings that don’t necessarily break during the tenancy but from which they get a shorter useful life because the tenants have been using them.”

Carter Jonas says that an amateur BTL owner paying 40 per cent income tax with a £500,000 mortgage at 4.5 per cent interest would be claiming £9,000 interest relief now on the £22,500 annual interest bill if the property was let. 

When the Osborne changes come fully into effect, the shortfall will be £4,500 when the allowable amount falls to 20 per cent rather than 40 per cent. This does not allow, of course, for the likely rise in interest rates by 2020, says the agency.