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Landlords face 60-day tax change countdown

Paloma Kubiak
Written By:
Paloma Kubiak

Landlords have 60 days left to file their 2017 tax returns – the first to detail the impact of new rules potentially meaning higher taxes.

According to research from Simple Landlords Insurance, which surveyed 760 UK landlords between July and September, almost half of landlords have changed their investment plans based on the tax changes.

The research also showed that 18% of landlords ranked changes to tax relief as having the biggest influence on their investment strategy – representing a bigger concern than changes to capital gains tax and increased stamp duty.

Nevertheless, less than 10% of landlords intended to reduce the size of their portfolios.

In fact, 4.4% of those owning at least two properties actually intend to invest further, and 63% of this cohort said the tax changes had had no effect on their plans.

The National Landlords Association estimates that the initial loss in tax relief this year could push more than 440,000 lower-rate taxpayers into a higher tax bracket. In England, the association estimates that 8.2 million people will be affected.

The phased reduction of tax relief on mortgage payments began in April this year with the deductible reduced from 100% to 75% of mortgage interest payments against rental income.

In April 2018, relief will be further reduced to 50%, then to 25% in 2019 before being removed entirely in 2020. The relief will be replaced by a tax credit of 20%.

A challenging year

The BTL market has seen a raft of changes as of late, including a stamp duty surcharge introduced on second and successive homes, as well as more stringent lending requirements from the Prudential Regulation Authority (PRA).

In the new year, landlords will also face proposed new requirements for HMO licensing, as well as energy performance rules which will come into effect for new lets and renewals on 1 April 2018.

See YourMoney.com’s Six points buy-to-let landlords need to know going into 2018 for more information.

Head of operations at Simple, Alex Huntley, said: “We know that landlords are adapting to the changes in the market, and are willing to embrace the challenges and find opportunities to develop more profitable and sustainable portfolios.

“Our research found that more than one in three landlords owning at least two properties would consider forming a limited company, trust, limited liability partnership or a combination of these to lessen the impact of the tax reforms.”

Huntley added: “There is no one solution or route, and landlords need to get expert advice tailored to their individual circumstances. But it’s heartening to see the majority of landlords remaining undeterred, and thinking about how to change with the market.”

The deadline for tax assessment and payment is 31 January 2018.