The Relocation Bureau

Buy to Let Tax Changes

Buy to let tax changes

On April 6th, at the start of the new tax year, the first stage of changes to the taxes on buy to let mortgages came into effect. Those landlords on a higher-rate of tax can no longer offset the full amount of interest on their mortgage against their rental income before calculating the tax due.

Over the next four years, the amount of interest they can offset will gradually be reduced, starting at 75% from the initial change, 50% in 2018, 25% in 2019 and falling to 0% in 2020, to be replaced by a flat 20% tax credit. These changes will mean some landlords will be taxed on non-existent profits, and thus make the entire concept of a buy to let property, ie making a profit, unworkable.

What this means for tenants in the rental sector is that as more and more Landlords are faced with rising tax bills, they are forced to either sell their property, which in the short term results in a decrease in available rental property stock, or alternatively increase rent levels – neither of which is good for tenants.

This isn’t an immediate cause for concern for existing tenants, as in either case the terms of a tenancy agreement must be adhered to. If a Landlord does sell his property whilst a tenancy is in progress, the new Landlord must continue to honour the existing agreement and all of the terms that it contains. Likewise with a Landlord who decides he wants to increase rent levels because of the tax changes, the increases must be in line with any clauses set out in the agreement.

New tenants might not be as lucky, with a recent survey by the Residential Landlords Association finding that at least two thirds of its members plan to raise rents by between 20% and 30%, a staggering increase. Without the safety net of an existing tenancy in place, new tenants can end up having to pay more rent to offset the Landlord’s increasing tax bill.

The advice is definitely to ensure you protect yourself as much as possible, by tying into a longer term tenancy with restrictions on any rental increases wherever possible.

We negotiate all of our client’s tenancy agreements to ensure they are fair and reasonable, not just with regards to rent increases, but all aspects including both Landlord’s and Tenant’s obligations. This service is included within all of our Home Search programmes, contact us to find out more about how we can help protect you and your employees.


May 2017