HMRC data shows landlords quitting buy to let as tax rises bite

An analysis of HMRC data reveals that the number of small buy-to-let landlords has dropped for the first time in five years.

The year under analysis in 2017/18 - the latest data available from the tax authorities.

Business advisory and accountancy service Moore, which has made the analysis, says the number of buy to let landlords with between five and nine properties fell to 157,000 in 2017/18 down from 159,000 the year before.

Moore explains that cuts to tax relief and other increases in stamp duty introduced by the government since 2015 have been driving out smaller landlords from the buy to let market. 

These changes are making buy to let portfolios less commercially viable for smaller landlords, with many now paying considerably more tax. 

In particular, Mortgage Interest Tax Relief cuts have disproportionately affected landlords with fewer properties and highly leveraged portfolios, who have smaller profit margins.

Additionally, from April this year, new restrictions are being introduced that will potentially have a significant effect on the Capital Gains Tax liabilities of ‘accidental’ landlords; individuals and couples who have retained a previous home to let. 

The impact of these changes on small portfolio investors and accidental landlords may further restrict the supply of rental property long term.

Currently, accidental landlords enjoy generous extensions to the principle private residence exemption, including Let Property Relief and a complete exemption for the final 18 months of ownership where the property was previously occupied as their main residence.  The latter is being cut to nine months and, in most cases, Let Property Relief will be lost altogether.  

However, the number of landlords who let 10 or more properties remains unchanged at 43,000. Those with larger portfolios generate higher levels of rental income, which lessen the impact of the tax relief cuts, and in some cases are contained within corporate structures, which are unaffected by the restriction on Mortgage Interest Tax Relief.

Jonathan Green, a partner at Moore says: “For some small landlords the latest tax relief cuts are likely to be the final straw, pushing them out of the market. Investment by small buy to let landlords has helped to improve the quality of rented properties in the UK - driving them out of the market could have a negative impact on tenants.

“Changes to the tax regime, such as cuts to reliefs and hikes to Stamp Duty Land Tax, will always be felt disproportionately by smaller landlords. Rental profits have been squeezed to the point where buy-to-let no longer makes financial sense for some.

“Buy to let landlords with smaller portfolios make up a huge part of the rental market. If their numbers continue to fall it could create a supply deficit which may result in higher rents longer term in some areas.

“Larger, more professional landlords, look to be unphased by legislative changes in recent years – bigger margins means these changes can be more easily absorbed.”