Hull Buy-to-Let Market Will Be Hit Hard by Tax Changes

 

The recently announced tax relief changes will potentially jeopardise the buy-to-let market in Hull, property experts the openpropertygroup.com believe.

With the latest news from Letting Agent Today that Hull is in line to be a rental ‘Boom Town’, with yields upwards of 10.7% there are concerns that stifling the rental market will harm entrepreneurship and regeneration in the region.

Buy-to-let landlords have, until now, been eligible to claim tax relief on their mortgage interest payments based on their marginal tax rate. In simple terms, this means basic rate taxpayers are eligible for 20% tax relief, whilst higher rate tax payers can claim 40% tax relief, with taxpayers paying the top rate of income tax able to earn 45% tax relief.

The impending changes will mean that although buy-to-let landlords will still be eligible for tax relief, the basic rate of 20% will apply across the board. So whilst basic rate taxpayers won’t be affected, landlords paying a higher rate of tax could see their profits slashed by thousands of pounds annually.

Many Landlords are already considering raising rents (84%), as well as considering tactics such as placing their portfolio in a limited company. Doing so means they only need to pay corporation tax rather than income tax – and with the recent news that corporation tax could be further slashed following Brexit, it looks like this could become an attractive option, although landlords will find fewer mortgage providers willing to lend to a company.

A further blow to buy-to-let investors occurred last year with the introduction of a stamp duty surcharge on second homes and buy-to-let properties.

With a 3% hike, investors are now expected to pay an additional £7,500 stamp duty on a £250,000 property. While George Osborne proudly claimed this will result in an additional £1.1bn to the exchequer by 2021, the Residential Landlords Association state such tax rises will simply be passed onto the consumer to protect profits. They are urging to government to reconsider to avoid a property collapse.

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