Landlords set to see taxable profit rise sharply

Buy-to-let landlords will experience an average 13% rise in their taxable profit from 2017/18 to 2018/19, leaving many with little alternative but to pass on the additional financial burden to tenants, according to Upad.co.uk. 

The company, which recently collected the award for best online letting agent at the ESTAS, claims that 20% of landlords will increase rents to help mitigate the cost of their new tax bill, meaning tenants could face a permanent increase in rent as a direct result of the changes.

The changes, which were phased in at the start of the new financial tax year - 6 April - mean landlords must now pay tax on turnover, rather than the difference between rental income and mortgage interest.

By 2020, 100% of buy-to-let finance costs will be restricted to the basic tax rate of just 20%. 

Upad believe that many basic-rate taxpaying landlords may find themselves moving up a tax bracket as a result of the phasing out of mortgage interest relief. 

But the letting agent reminded us that there are other options for landlords to consider besides rent increases, including setting up a company to buy property, or transferring an existing property to a limited company or a lower-rate tax payer if it is jointly owned.

James Davis, CEO and founder of Upad.co.uk, commented: “Despite the changes being gradually introduced over the next four years, our latest research shows already how out of pocket landlords are set to be by 2018/19 alone, as they see a big rise in their tax bills and a substantial hit to their profits. 

“Those who are in the higher rate tax bracket of 40% will be the worst affected but others could find themselves being tipped into the higher tax bracket despite their income not having increased, which will leave many renting at a loss and subsidising their property every month.” 

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