Estate agent, ludlowthompson, explains that even once all of the Government’s planned reductions to buy-to-let tax relief are in full swing by 2020, landlords will still be able to offset £16.7bn of their expenses against rental income.
In recent years, HM Treasury has treated buy-to-let as a source of extra tax revenue. Restrictions to tax relief introduced since 2015 include changes to the way wear and tear allowance is calculated and the amount of income tax relief available on interest on mortgages.
Despite Government cuts to tax relief, landlords were able to claim £7bn in tax relief on mortgage interest and other financial costs in the last year. A further £4.1bn was claimed for property repairs and maintenance. Landlords are still able to claim tax relief when purchasing furniture for a rental property under wear and tear allowance.
Tax reliefs allow private residential landlords to subtract their costs from their rental income – just as a small business is able to offset its expenses against its income. These costs include a tapered element of mortgage interest payments to be fully implemented by 2019-20; property repairs, maintenance and renewals; legal, management and professional fees; and rates, insurance and ground rents.
Stephen Ludlow, Chairman at ludlowthompson, says: “The tax grab on buy-to-let investment is unwelcome but it has not undermined the attractions of buy-to-let especially when compared to the volatile stock market.”
The FTSE100 suffered its worst year in 2018 since the financial crisis, falling 12.5%.
‘Total Return’ Landlords who take a long term view of investing in property use allowances to upgrade their properties, which in turns helps to drive their rents and, consequently, their net returns. In 2017, seasoned investors enjoyed total returns of 7%.
Stephen continues: “You’re still able to offset the vast majority of your costs - ensuring landlords will still benefit from tax relief on a high proportion of their rental income.”
Stephen cautions the Government on further changes in tax allowances that could discourage landlords from investing in the ongoing maintenance and upgrade of their properties.
“Tax reliefs are one way that can incentivise landlords to continue investing in their rental properties thereby improving the quality of rental stock across the UK. If landlords are not allowed to offset their costs, they may be dis-incentivised from investing in buy-to-let – and that would impact the supply and quality of rental property as a whole.”
Policy-makers need to ensure they still encourage landlords to invest in buy-to-let. They are essential for ensuring a strong supply of high-quality rental property. This helps improve labour mobility, particularly in large economic hubs such as London. The Government should look to keep further intervention in the sector to a minimum.”
