New landlord rules as of 6 April 2017: buy-to-let tax changes introduced today

Today is the date that landlords have been dreading. April 6 2017, not only marks the beginning of a new tax year, but the time when new buy-to-let tax regulations come into force, introducing a number of important changes for BTL landlords.

Reductions phased in over 4 years, starting today

The Government announced last year that it was reducing the tax relief landlords can claim.

The reductions are being phased in over the next four years and eventually being replaced with a 20 per cent tax credit.

A higher tax bill means lower profits for landlords, prompting many to suggest that they will look to recoup their losses through higher rents.

It comes a year after the Government imposed an additional 3 per cent stamp duty hike on buy-to-let and second homes.

Could new buy-to-let legislation have “unintended consequences”?

Kay Daniel Neufeld, an economist at Cebr, said: “Government interventions in the buy-to-let sector further sap demand out of the market.”

“Starting in April, private buy-to-let investors will no longer be able to fully deduct mortgage interest payments from their tax bills, leaving them with lower net profits.”

Shaun Church, a director at mortgage brokers Private Finance, said: “The new mortgage interest tax relief rules for landlords are threatening to become an example of Government regulation resulting in unintended consequences.”

He added that by hitting landlords’ profits, the changes may ultimately make it even more difficult for prospective first-time buyers to get on to the housing ladder.

“Not being able to fully deduct finance costs from their taxable income will leave some landlords with a tax bill that outweighs their profits. As a result, many will look to increase rents to compensate for the loss in revenue.”

Church went on to say that the changes are also limiting landlords’ “investment appetite”. Fewer landlords investing in new buy-to-let properties at a time of already restricted housing supply, and rental demand remaining high, could also result in higher rents.

Limited companies could be the way forward for landlords

“The only way of getting around the changes is to invest through a limited company.” Says Church, but it might not be that easy.

“There are fewer mortgages available to these types of investors, and they typically come with much higher rates of interest. There are also a whole host of tax implications to consider that make moving to a limited company structure far from a straightforward decision.”

Landlords face penalties of up to £30,000

Today is also the day that the Government is introducing penalties of up to £30,000 for a range of housing offences committed by landlords, including a failure to get a House of Multiple Occupation licence and for overcrowding a property.

Housing Minister Gavin Barwell confirmed the powers will give local authorities the tools to crack down on rogue landlords who shirk their responsibilities

He said: “These measures will give councils the additional powers they need to tackle poor-quality rental homes in their area.

“By driving out of business those rogue landlords that continue to flout the rules, we can raise standards, improve affordability and give tenants the protections they need.”

The Government is also introducing powers for councils to access Tenancy Deposit Protection data to help them identify rental properties in their area, claiming this will help them to tackle rogue landlords.

How will the buy-to-let tax changes impact you? Let us know in the comments.

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