Why Landlords Are Raising Rents
Following the budget in July where there were several tax changes planned, the Residential Landlords Association sent out a survey to landlords registered with them and it is the results of this survey that is useful to know about if you are a landlord or a tenant.
The survey found that 65% of landlords said that they would consider increasing their rents as a direct result of the tax changes.
So what are these changes?
Mortgage Interest Relief
Chancellor George Osborne announced on the 8 July 2015 that mortgage interest relief for landlords (residential) would be restricted to the basic rate of income tax, which will be phased in over four years starting April 2017.
At the moment, a landlord can deduct their costs before they pay tax and this includes mortgage interest. This is seen as tax relief for landlords.
His argument being that, landlords were looked on more favourably than homeowners with regards to tax. However, the Institute of Fiscal Studies believe that this is not correct because landlords are also taxed on rental income and capital gains.
Alan Ward, Chairman of the Residential Landlords Association (RLA) says that, “Rather than supporting our sector to provide the vital homes needed to support a flexible labour market, today’s Finance Bill will choke off supply and drive up rents.”
Wear and Tear
The budget set out a consultation launched on 17 July to run until 9 October 2015 to reform landlords’ wear and tear tax allowance. The government intends from April 2016 to deduct the actual cost of replacing furnishings from pre-tax earnings.
Landlords can currently offset 10% of annual rental income against tax for wear and tear.
Landlords welcome this move according to the RLA, however, they believe that this should be transitional to allow landlords who have just shelled out on new furnishings expecting to be able to offset the cost over a period of years using the old allowance, would not be at a disadvantage.
However, this could be another cost that is covered by a rise in rent as some landlords believe that they will no longer be recompensed for wear and tear. Also Alan Ward believes that this can lead to a reduced investment in repair or renovation causing lower standards in rental properties.
There is currently an ongoing campaign that the RLA are running since the budget as a response to these changes. Alan Ward has written to voice the ‘serious concerns’ the association has about the proposals and has asked the Chancellor for further evaluation. If you would like to know more details, you can find this letter on their website by clicking here.
If you are landlord confused about making decisions about your portfolio- talk to a financial adviser who can give you pointers and help work out where you could save on your tax bill.
If you found this article useful, click here for How Renting Is Overtaking Home Ownership