By far the biggest — and possibly the deadliest — blow to some landlords’ rental businesses is the reduction in tax relief on buy-to-let mortgages for higher earners.
The relief will be gradually reduced, from a maximum of 45 per cent for those in the top tax bracket to the basic rate, currently 20 per cent, over a four-year period, starting from April 2017.
As landlords won’t be affected for a couple of years, there’s no need for us to rush to sell up just yet, although some will be spooked into thinking about it.
Even when the tax relief is down to 20 per cent in 2020, many of us would still be all right if interest rates stayed low. However, they are sure to rise, and some landlords could end up paying tax on a loss, which we won’t be able to sustain.
I can see why the Chancellor has done this — he is worried about buy-to-let investors mopping up properties and squeezing first-time buyers out of the market.
Also, it will level the playing field for owner-occupiers, who lost tax relief on their mortgage interest years ago. Morally, it’s probably the right thing to do, but it does make buying to let a riskier investment.
I was just about to exchange contracts on a new rental property, but now I will have to take another look at the maths. Or rather my husband will, as he’s the brains and I am the, er, well, moving swiftly on... let’s look at the other hammer blows delivered by Mr Osborne.
The annual wear and tear allowance, which allows landlords with furnished properties to automatically shave another 10 per cent off tax bills even if we haven’t spent a penny, will be ditched. From next April, we will only be able to claim tax relief on money we have actually spent replacing items.
As my mortgage broker Martin Stewart from London Money says, suddenly landlords are going to be digging down the backs of sofas to recover lots of forgotten receipts.
We will also have to spend longer filling out tax returns, or pay accountants to do it for us, which will increase our costs, but it is hard to argue we should have been allowed to keep what always felt like an end-of-year bonus.
“And at least it will make people realise that buy-to-let is a serious investment and something that requires professional advice,” says Martin when I called him for a moan. “The Government’s treating it like a grown-up business now.”
Yeah, George Osborne’s like the parent who turns up at a party.
And there was another blow. He’s cutting social rents by one per cent a year over the next four years, which will make letting to tenants on housing benefit even less viable. This isn’t going to do anything for the capital’s homeless.
On announcing the reduction, the Chancellor said: “I am confident landlords in the private sector will be able to play their part to help deliver the efficiency savings needed.” Given he had just revealed the cut in tax reliefs, it felt like he had slapped us in the face then asked for a hug.
But the Budget wasn’t all bad. If you let a room in your own home, the Rent a Room tax relief is rising from £4,250 to £7,500 a year, so you can earn £144 a week rent without paying any tax. Good news for some, but on the whole the future for landlords suddenly doesn’t look so rosy.
- Victoria Whitlock lets three properties in south London. To contact her with your ideas and views, tweet @vicwhitlock.