A number of buy-to-let landlords are still unaware, or only vaguely aware, of the changes to mortgage interest relief, despite the new tax rules coming into force last week, according to new research.

Online letting agent Upad has conducted a survey of its landlord clients and found that 20% were oblivious to the fact that they may now have to pay more money in tax as a consequence of the changes, while almost half – 47% – have no idea how much more tax they will be paying by 2020 when mortgage tax relief has been completely phased out.

The previous rules that allowed landlords to offset all of their mortgage interest against tax is being phased out over the next three years.

Once mortgage interest relief has been withdrawn altogether in 2020/21, the consequences of Section 24 will mean that landlords will only be able to claim back a basic tax rate deduction of 20% off their tax bill, which will eat into their rental returns.

Reflecting on the changes, one landlord, Anne Wright, who rents out her property in Bath through Upad, said: “I haven’t considered how much the changes to mortgage interest rate relief are going to affect me, but as a basic rate tax payer currently, I am concerned that I will end up in the higher-rate tax bracket because I own this property.

“The government seems to think of all landlords as being professionals with huge portfolios of property and super yachts, but there are lots of people like me, who have just one flat that have ended up with it by circumstance, rather than the intention of making lots of money, who are going to be unfairly penalised by this new tax system.”

The research by the online letting agent also revealed that one in five landlords plan to increase rents to help mitigate the cost of their new tax bill, meaning tenants could face a potential rise in rent as a direct result of the changes.

James Davis, CEO and founder of Upad, commented: “Higher tax will mean lower profits for many landlords, which is why some are warning that rents will have to rise this year. However, rent rises are likely to be deeply unpopular with tenants so landlords will need to think about adding some cost-effective, tax deductible improvements to their properties that justify asking for an increase. For instance, by providing complimentary Wi-Fi, upgrading the appliances or giving the kitchen or bathroom a makeover.”

For landlords that are affected by this month’s tax changes but yet to do anything about it, there is still time to look at ways of reducing your costs and increasing your revenue, according to Davis.

He added: “You may need to sell off some low-yielding property, reduce some of your mortgage payments or change the ownership of your portfolio to protect the profitability of your business. Options include setting up a company to buy property or if you already own a rental property as a private individual, you could transfer it to a limited company.

“If you’re a higher rate or additional rate tax payer, or these changes risk tipping you into the higher tax bracket, and you own the property with a lower rate tax payer, you can transfer more of the rent to them to limit your overall tax bill. Another option could be to switch to fully furnished holiday lettings as these are exempt from the tax changes so you can still claim full mortgage interest tax relief.”