The future is not looking very bright for landlords. Recent government tax changes have caused a great deal of upset in the buy to let community, with many landlords feeling as if they are being penalised.
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From next April, mortgage tax relief will be gradually phased out and many more landlords will end up in the higher 40% tax bracket. The effect of this loss will cause some landlords’ tax bills to double.
Property is a Pension Pot for Landlords
There are approximately two million landlords in the UK. For years now, the buy to let sector has been incredibly lucrative. Canny investors have snapped up properties, taking advantage of low interest rates to secure a second income and a nest egg for their retirement. Property has long been viewed as a ‘safe’ haven for savings, so it’s no surprise that many landlords are using their property portfolio as a pension fund.
April Tax Changes for Landlords
At the moment, landlords with mortgages can off-set their mortgage interest against their earnings, but from April this will no longer be possible. If you don’t have a mortgage, or your mortgage is relatively low, this won’t be too much of a problem, but if you are mortgaged to the hilt, you could end up losing money on your investment.
For landlords in this position, the only option will be to raise rents or sell up. Neither of these two options benefits tenants. Experts say the perfect storm is brewing, whereby landlords raise rents or sell up, tenants have to leave, but the supply of rental properties is smaller, so prices continue to rise. In summary, nobody wins.