Despite much of the political dust having now settled since Chancellor George Osborne announced the Summer Budget, landlords up and down the country are probably still left wondering ‘what does this mean for me?’
Following the buy-to-let boom of the last decade, the £2bn worth of outstanding debt on buy-to-let mortgages is seen as increasingly worrying – something reflected in the summer budget.
With phrases such as “levelling the playing field” and “rebalancing” frequenting the Chancellor’s vocabulary, private landlords won’t welcome the coming changes with open arms.
Wear and tear changes
Remember the 10% Wear and Tear Allowance? As of April 2016, the annual tax-free allowance will give way to an allowance against actual spending. Before a landlord is able to deduct costs from their profits, they will have to prove that their property has been improved or maintained.
Tax relief to be capped
As it stands, those buying a property with the intention of letting it out can claim tax relief on their mortgage interest payments up to 45%, should they be a higher-rate taxpayer.
However, as of April 2017, the amount landlords can claim will be capped at 20%, the basic rate of tax – a move intended to narrow the gap between those buying a house to live in and those buying to let.
Housing Benefit concerns
Landlords currently renting to tenants on Housing Benefit are facing concerns about increased arrears after it was announced the current £26,000 cap will be reduced to £20,000 and £23,000 in London.
In addition, 18 to 21 year olds will no longer be able to claim housing benefit, aside from those in special circumstances.
Housing associations’ rental income could fall by as much as 15% as social landlords are made to reduce rent by 1% a year for four years.
Meanwhile, housing associations who don’t know how much their high earning social housing tenants – those earning more than £30,000 or £40,000 in London – will have to find out, as their rents increase to full market rates.
Increase in inheritance tax threshold
There will be some good news for many landlords as the inheritance tax threshold is increased to £1m. Currently estates over the tax-free allowance of £325,000 per person are charged 40% tax.
However, from April 2017, there will be a family home allowance, meaning their estate can be passed on to their children or grandchildren tax-free after they pass away.
Over 15% of new mortgages are now tied to buy-to-let properties, and much of Osborne’s changes are looking to address what the Bank of England warned ‘could pose a risk to financial stability’.
What do you think? Will these changes stabilise the housing market, or are landlords being unfairly punished? Let us know in the comments below!