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Home > Property investors’ buy-to-let profits cut

Property investors’ buy-to-let profits cut

7th July 2015 | Published by Henry

Cash-cuts-250x188Hundreds of thousands of landlords will be hit by the Chancellor’s plans to scrap mortgage interest tax relief in 2017.

The move, announced in the recent Budget, will mean that many property investors lose 11 per cent of the gross returns from their buy-to-lets.

Should interest rates rise by the end of the year, as Governor of the Bank of England, Mark Carney, has indicated they might, landlords’ losses will be even greater.

Landlords are set to lose 25 per cent of their higher rate tax relief on their mortgages every year for three consecutive years until 2020, when all mortgage interest relief will be restricted to the basic rate of just 20 per cent.

This means that for every £100 in interest on mortgage repayments, landlords will have to pay £80, as opposed to the £55 higher tax rate payers currently pay.

The National Landlords Association has said that the Chancellor’s tax changes could reduce property investors’ net yields from 4.9 per cent to 4.3 per cent, if they are 40 per cent tax payers. Mortgage broker, London and Country, pointed out that on a property worth £160,000 with a mortgage of £120,000, the annual profit of £612 would actually become a loss of £588.

Buy-to-lets have trebled since 2005, particularly as other types of long term saving schemes have been disappointing, such as pensions.

Property investors have bought almost 1.7 million buy to lets with mortgages, offsetting their costs against rents to get tax relief at their own highest tax rate. Those paying the higher rate of 40 or 45 per cent tax, will see their mortgage tax relief phased out.

However, landlords are still able to claim a number of expenses to offset the income tax they pay, such as the costs of finding a tenant, building and contents insurance, maintenance and repairs following normal wear and tear, furniture, ground rent and council bills.

Category: Money
This post was written by Henry
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