Buy to let landlords brace for the new tax year

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Buy-to-let landlords have turned negative on their investments due to higher taxes and greater regulation, according to research from property development firm Accumulate Capital.

The research found that 37% of UK property investors are planning on selling one or more of the residential properties they own in 2020, and over half of landlords would not have purchased their properties in the first place had they known how regulated the industry would become.

The research also found that 61% of those planning to sell said this was a response to the greater regulation and higher taxes they now face as buy-to-let investors. In addition, 72% consider current taxes and regulations to be unfairly weighted against landlords. Meanwhile, over two thirds of landlords say the costs of managing their property portfolio have risen considerably over the past five years.

Commenting on the research, Paul Howells, Chief Executive of Accumulate Capital, said: ‘Property investors are clearly frustrated by how much red tape there now is within the private rental sector and buy-to-let market. ‘Yes, there is a need for regulatory measures to protect the interests of all parties involved in the property market, but as our research shows, some landlords feel the current system is unfairly weighted against them.’

Here’s just a few of the changes that are taking place from the new tax year: 

Mortgage interest tax relief changes

The government has been phasing out tax relief on mortgage interest since April 2017, with the proportion you’re allowed to deduct slowly being reduced each tax year. This will come to a head in April, at the start of the 2020-21 tax year. From then, you’ll only be able to subtract a flat credit of 20% of your mortgage expenses from your rental income when filing your tax return. These changes to tax relief are controversial, and have long been cited as one of the primary reasons landlords are selling their buy-to-let.

Changes to private residence relief
An overhaul of property residence relief rules could hit smaller landlords with higher capital gains tax bills when they sell their property. Currently, you can claim up to £40,000 in capital gains tax relief if you let a property that is, or has been, your main home – even if you haven’t lived in it for a long time. From April, this loophole will be closed, and landlords will need to be living in the property in shared occupancy with the tenant at the time of the sale to claim the relief.

New energy efficiency rules

From April 2020, more landlords will need to meet the new Minimum Energy Efficiency Standard (MEES) regulations, which require rented homes to have a minimum Energy Performance Certificate (EPC) rating of E. Landlords with properties that don’t meet the regulations must carry out energy efficiency measures on their homes, up to a cap of £3,500 a property. The rules were first introduced in 2018, but originally only covered new tenancies and renewals. From April, however, they’ll apply to all existing tenancies.

If you’re a landlord and need specialist taxation advice, contact our tax team.