Property costs rising

Taxes and red tape force ‘amateur’ landlords to sell up

Money property letting

Letting properties is losing its allure


The era of the amateur landlord may be at an end as a further erosion of tax benefits this year turns a lucrative ‘hobby’ into an administrative nightmare.

By 2020 there will be few financial incentives left for landlords, according to accountants and business advisors French Duncan.

The firm says many people became private landlords through circumstances such as inheriting property, or because they were unable to sell their property and decided to rent it out until the market picked up.

These hobbyists, who are estimated to account for 60% of all landlords, are now faced with an array of financial and regulatory changes which have turned what was once a lucrative hobby into an administrative burden which may end up costing them money. 

Stephen Oates, tax director, commented: “The process of removing tax benefits from landlords began with [former Chancellor] George Osborne when he started to remove relief on borrowing for landlords. Since then this has been gradually reducing and will only apply at the lowest rate from next year onwards.

“The aim has been to make it more expensive for landlords to buy a property, more expensive to borrow and run a rented property, and then tax the investment at a higher rate when it is sold.

“The result is that the whole process of being a landlord has become more complex, costlier, and less attractive for all but professionals and large-scale investors.”

Changes include a 3% LBTT surcharge on all new buy-to-let properties (4% from 25 January) valued at £40,000 or more since April 2016 which has considerably softened interest in the market in Scotland, said Mr Oates.

In England the Stamp Duty Land Tax (SDLT) is charged at 3% on the first £125,000 rising to 5% up to £250,000 with further rises beyond.

The limiting of landlords Mortgage Interest Tax Relief (MITR) phased in over four years from 2017/18 means that many landlords will face considerably higher tax bills in the future as relief on interest is removed.

The loss of relief on wear and tear is a further cost to landlords. This was a 10% deduction based on the level of net rent received.  It was allowed even where the landlord didn’t incur any repairs or maintenance expenses in the year. It was removed and in its place a claim for expenses incurred is now allowed where it is not capital in nature. 

There are also new underwriting requirements and capital gains tax lettings relief has all but been removed and will now only to apply where owners share occupancy with the tenant.

Mr Oates concluded: “The result of these changes is that many landlords have been exiting the market. They have seen the cost of buying and maintaining property rise and the regulations involved in managing it become more complex.

“For many landlords enough is enough and they have decided to leave the market. This year may well be when many more landlords decide to sell up.

“There will still be financial issues involved in the selling but doing it this year rather than next should save some of the potential tax liabilities which are coming.”

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