Buy-to-let landlords showing resilience in the face of tax relief cuts

Buy-to-let landlords showing resilience in the face of tax relief cuts

As the deadline for Section 24 tax relief changes is now upon landlords, many have predicted a gloomy future for the buy-to-let market, but it seems the sector is adapting well to the changes.

The buy-to-let market is facing some challenges at the moment and many landlords have been forced to re-evaluate their property portfolios and profit margins. Landlords filing their returns for the 2017-18 tax year are braced for decreased profits as the government’s mortgage interest tax relief changes are phased in, and are exploring what can be done to avoid seeing potentially thousands of pounds of profits wiped out.
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Up until last April, landlords could deduct all of the mortgage interest payments before calculating their tax bill. This meant they were taxed on profits rather than their overall turnover, which for landlords with interest-only mortgages meant significant savings.

For 2017-18, tax relief can only be claimed on 75% of mortgage interest and a 20% tax credit will be applied to the rest of the mortgage payment. This is set to decrease further in 2019 to tax relief only on half of the interest and 20% credit on the rest and in the 2020-21 tax year, a tax credit limited to the basic rate of tax (20%) will fully replace the mortgage interest tax relief.

Optimism despite uncertainty

Some landlords have already taken steps to avoid the tax relief changes and have set up a limited company for their investment properties. According to specialist broker Kent Reliance, 70% of their buy-to-let mortgage applications were made via limited companies between January and September 2017.

It seems that landlords are remaining optimistic about the future, despite the challenges they face. Research by Shawbrook Bank found that 65% of buy-to-let investors are confident about the performance of their property portfolio in 2018.

Karen Bennett, managing director of Shawbrook Bank commercial mortgages, said: “There’s a healthy dose of uncertainty around at the moment, but the buy-to let market is showing its resilience.

“Property continues to offer an excellent underlying investment vehicle for professional landlords with the right investment strategy.”

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