44% of landlords plan changes because of tax

44% of landlords are set to make wide-sweeping changes in reaction to the tax changes introduced by the government over the past 18 months, new research has revealed.

Among the changes planned are increases to rent, the sale of properties, switching to self-management of properties and in some cases a complete exit from the buy-to-let market.

According to tenancy deposit scheme mydeposits, 44% of landlords indicated that they would need to make changes as a result of the introduction of tax changes that will reduce their income yields from property.

The firm suggests that the full effects of the changes are unlikely to be seen for another three years, as the rate of mortgage interest tax relief is reduced and eventually phased out by 2020, when it will be replaced by a 20% tax credit.

Mydeposits indicated that the vast majority of private landlords are individuals owning up to two properties, who use buy-to-let as a part-time income supplement rather than a full-time business.

Consequently many are less likely to keep abreast of legislative changes and the survey found that 26% of respondents were unaware of changes affecting mortgage interest tax relief, while a further 23% did not know about the additional 3% stamp duty payable on second home purchases since April 2016.

The research showed that 86% of landlords that took part owned between one and four properties, with 8% owning between five and 10 properties. While 21% of landlords said the changes will not affect their buy to let business, 25% indicated they will need to increase rents to tenants.

10% of landlords intend to sell up altogether, while 9% plan to take a more hands-on role by switching from using a managed service through a letting agent to self-managing in order to reduce outgoings.

Andrew Turner, chief executive at Commercial Trust, said:

“The findings of this report are interesting and perfectly illustrate the varying levels of understanding that landlords have within the buy-to-let market.

“The government has introduced enormous change over the past 18 months which many landlords are simply unaware of. Much of the new legislation will have a financial impact on landlords but it is important that any reaction is made with a full understanding of the potential consequences.

“Certainly the 3% stamp duty surcharge on additional homes, the abolition of the wear and tear tax break and the phasing out of buy-to-let mortgage tax relief are issues that many landlords are already familiar with or will soon know about.

“In an environment with much confusion, we would recommend anyone affected to consider speaking to an expert before making any decisions.”

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This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.

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