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Landlords with Mortgages Paying 66% Tax on Rental Income

An assortment of tax related items

Research carried out by The Daily Mail’s Money and Property section has revealed that higher rate taxpayer landlords with buy to let mortgages are paying an effective tax rate of 66% on their rental profits. Landlord organisations now fear that such a dismal return will encourage many landlords to leave the sector. If this happens, there will be a dire shortage of rental accommodation for tenants, which could lead to a housing crisis.

Loss of Mortgage Interest Tax Relief

The astronomical tax rate is caused by the loss of mortgage interest tax relief. This is being phased out in stages, but by 2020, landlords with mortgages will no longer be able to claim tax relief for interest in their finance. Higher rate taxpayers who are heavily mortgaged will end up with very little return on their properties. Some could even end up making a loss.

Landlords are also having to deal with a 3% stamp duty surcharge, as well as increased regulation. Landlords who own an average-priced property that is worth around £200k could end up making as little as £900 per year, although there would be some capital growth.

Capital Growth Not Enough

Many will decide that capital growth alone is not a good enough reason to deal with the stress of letting out properties. For those landlords who remain undeterred, their only option is to increase the rent they charge to recoup their costs.

As the supply of rental housing falls, competition increases. This is bad news for tenants as they will have no choice but to fork out more each month.

Do you think the loss of mortgage interest tax relief will spell disaster for the housing market? Let us know in the comments.

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