Around 440,000 basic-rate tax payers will be pushed into a higher tax bracket from April 2017, according to a new report from the National Landlords Association.
Current rules permitting landlords to offset mortgage interest against tax is being phased out from next year. As such, the amount of mortgage interest landlords can offset against tax when buying property is to be restricted.
Changes
The phasing out of mortgage interest tax relief will be complete by April 2021. By then, it is estimated that higher-rate tax payers will only receive 50% of their current relief. This will subsequently cut returns as landlords will be required to pay much more in income tax.
Worryingly, the National Landlords Association claims that while 440,000 basic-rate tax payers (roughly 22% of landlords), will be pushed up a bracket, all landlords could be at risk.
By region, landlords in the capital are likely to be worst hit, with 31% of investors estimated to be impacted by the changes. Next came the East of England (30%) West Midlands (28%).
The full breakdown of where landlords will be impacted is shown below:
| Region | Will move up a tax bracket
(from basic to higher rate) |
| East England | 30% |
| East Midlands | 22% |
| London (central) | 31% |
| London (outer) | 24% |
| North East | 24% |
| North West | 19% |
| Scotland | 13% |
| South East | 25% |
| South West | 23% |
| Wales | 23% |
| West Midlands | 28% |
| Yorkshire & Humber | 24% |
22% of landlords to be pushed into higher rate tax bracket from 2017
Liability
Further research from the NLA indicates that landlords’ tax liability will rise depending on their yearly mortgage interest payments. These are broken down by portfolio size below:
- Single property-£3,600
- 2-3 properties-£8,600
- 4-5 properties-£16,300
- 5-10 properties-£18,200
- 11-19 properties-£24,900
- 20 plus properties-£38,000
Richard Lambert, chief executive officer at the National Landlords Association said: ‘When the Government announced these changes last year, it claimed they would only hit a small proportion of higher-rate tax payers. We now know that is complete tosh.’[1]
‘The Government must look to amend these tax changes and minimise the impact on landlords and their tenants-something that could easily be achieved by applying the rules to only new loans written after April 2017. Unless this happens, landlords will face an impossible decision of whether to increase rents and cause misery for their tenants, or sell-up and force their tenants to find a new home,’ he added.[1]
[1] https://www.landlordtoday.co.uk/breaking-news/2016/10/around-440-000-landlords-will-be-pushed-into-higher-tax-bracket-from-april-2017
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