Recent Changes affecting the Buy -to-let Market

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Recent Changes affecting the Buy -to-let Market

Recent Changes affecting the Buy -to-let Market

Recent Changes Affecting the Buy-To-let Market

The buy-to-let sector has faced a major crack-down in current years with the government implementing a series of policies aimed at curtailing the number of private landlords engaging in buy- to-let activity.

The policies could have the effect of reducing the buy-to-let sector by deterring landlords from buying properties to let or potentially increasing rents as landlord's try to make up for the financial losses brought about by the government's policies. Highlighted below are some of these policies:

3% increase in the stamp duty payable by landlords on second homes

This change, which came into force in April 2016, had the effect of adding a 3% surcharge on top of the existing standard rate of stamp duty for anyone buying a second home. Although this change affects anyone seeking to buy an additional home, it has a particularly strong impact on the buy-to-rent sector and landlords seeking to buy additional properties to rent out.

The table below illustrates how the new stamp duty surcharge will be calculated:

Scrapping of the tax relief on mortgage interest payments

Prior to April 2017, a landlord would be able to deduct any mortgage interest from their rental income before calculating their tax bill. This effectively meant that a landlord would only pay income tax on their net rental income. This interest tax relief has been incrementally scrapped by the government with the relief being reduced by 25% each year until 2020. Therefore, in the 2019-20 tax year landlords will still qualify for 25% of mortgage tax relief. However, in 2020 landlords will no longer be able to claim any percentage of tax relief on their mortgage and instead the relief will be replaced with a 20% tax credit.
The new tax credit system could potentially be less generous than the previous income tax relief scheme. For instance, a higher or additional-rate taxpayer (someone paying a rate higher than 20%) will not recover the full tax amount on their mortgage interest.

Cut to lettings relief

Back in October 2018, the government announced a change to the current level of lettings relief. The current scheme allows landlord s to claim up to £40,000 relief when renting out a property which is now or has been in the past their main home. However, from April 2020 the lettings relief will no longer apply, unless the homeowner is living in the home with the tenant or lodger.
This change, which is set to come into force in April 2020 could, according to government sources leave landlords far worse off.

For more information on this, please contact Natalie Grant or you can give us a call on 0345 070 600. 

Bruna Oliveira also assisted with the writing of his article.