Some 440,000 basic-rate tax payers will be forced into a higher tax bracket from April next year once planned changes to landlord taxation comes in to force, according to the National Landlord Association (NLA).

The existing rules that permit landlords to offset all of their mortgage interest against tax will, from April 2017, be phased out, restricting the amount of mortgage interest landlords can offset against tax on their property investments.

By April 2020, once they have been withdrawn altogether, the disastrous consequences of Section 24 will mean that it is likely that higher-rate tax payers will only receive 50% of the relief that they currently get, which will eat into their rental returns as they will be required to pay significantly more income tax.

The NLA claims that while 440,000 basic-rate tax payers – 22% of approximately 2 million landlords in this country – will move up a tax bracket, all landlords could be at risk of seeing their tax liability increase regardless of their existing rate of tax, with landlords in central London (31%), the East of England (30%), and the West Midlands (28%) particularly hit.

The amount by which landlords will be affected will depend on their personal circumstances, including whether or not they generate income from any other sources.

NLA research shows that landlords’ tax liability will increase depending on their existing annual mortgage interest payments, which are broken down by portfolio size below:

Single property – £3,600

2-3 properties – £8,600

4-5 properties- £16,300

5-10 properties – £18,200

11-19 properties – £24,900

20+ properties – £38,000

Richard Lambert, chief executive officer at the NLA, said: “When the government announced these changes last year, it claimed they would only hit a small proportion of higher-rate tax payers.  We now know that is complete tosh.

“The government must look to amend these tax changes and minimise the impact on landlords and their tenants – something that could easily be achieved by applying the rules to only new loans written after April 2017.

“Unless this happens, landlords will face an impossible decision of whether to increase rents and cause misery for their tenants, or to sell-up, and force their tenants to find a new home.”  

Full regional breakdown: