ADVISERS with buy-to-let clients face a flurry of activity as the impact of changes to the taxation of landlords pledged during the Summer Budget sets in.
Those worst affected will see tax they pay on their investment potentially more than double; the tax rate payable rising above 100% of profit; a level of tax that pushes them into loss, undermining the financial viability of the investment and forcing them to increase rents or sell, The Telegraph reports.
The issue has been caused by George Osborne’s decision to remove landlords’ ability to deduct the cost of their mortgage interest from their rental income when they calculate their tax. The wealthiest, who do not have mortgages, are unaffected.
Already more than 14,000 have signed a petition to see the change – due to come in from 2017 and fully implemented by 2020 – reversed. However, concerns persist that many buy-to-let investors remain unaware, with their accountants set to pick through the ramifications.
“We are contacting all of our clients who have mortgaged property which they let, and we want to speak one-to-one with those worst affected. It is going to have a significant impact,” Smith & Williamson tax partner Tina Riches told The Telegraph.
The firm has worked out the move – which was not consulted on – will wipe out any profits for landlords with mortgage interest of 75% or more of their rental income, net of other expenses.
Those paying the additional-rate taxes will see their returns on investment disappear once mortgage costs reach 68% of rental income.
“It will be very difficult for middle-income borrowers to get into buy to let in future,” Riches said. “It won’t end overnight, but existing investors will sell and far fewer will buy. Buy to let may well waste away.
“The wider worry is that the government can make such radical changes without any consultation. What other areas will come under attack?”
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