What tax changes are troubling landlords?

by | Jun 5, 2018 | Blog

Landlords have had a hard time of it in recent years following the introduction of tougher tax rules, changes to mortgage reliefs and rising interest rates. 

Quite a few of our clients are residential landlords, many of whom may be considering reducing their property portfolios over the course of 2018/19 if research is to be believed. 

A recent study from the National Landlords Association suggested 1 in 5 housing landlords intend to sell up  this year – the highest level for a decade. 

Many of these may be smaller or accidental landlords, who have been hit the hardest by the changes as they struggle to absorb rising costs as easily as bigger fish in this pond. 

But what forces are driving this change and how could it affect your business? 

How do changes to mortgage interest relief affect me?

It is no longer possible for us to offset your entire mortgage interest bill against any rental income when it comes to calculating your tax liability. 

Before 6 April 2016, all landlords in the private rented sector used to pay tax on the profits made in the financial year after deducting mortgage interest. 

Instead, landlords in this sector now pay tax on the full amount of rent received before mortgage interest is paid. 

As this is being phased in over 4 years, we can only deduct half of your costs from your profits in 2018/19 with the remaining half deducted from the basic rate of income tax. 

Mortgage relief will drop by another 25% for 2019/20 before being fully phased out on 6 April 2020. 

What can you tell me about a proposed tenant fees ban?

At the time of writing, it’s possible for landlords and letting agents to charge tenants certain fees.

However, it seems certain the Tenant Fees Bill will receive Royal Assent sometime in 2018 and we recommend all landlords and letting agents get their houses in order now (excuse the pun!)

It’s likely that once the Bill is rubber-stamped, you will only be allowed to charge for holding deposits, rent, and any charges for the tenant defaulting on the contract.

All other tenant fees look likely to be banned, although this is subject to further change.  

Are there any more landlord changes ahead?

You may have seen or heard media reports about the government cracking down on rogue landlords, and this is something to be wary of. 

Most landlords with a property licence have nothing to worry about so long as the state of the accommodation you provide is in good condition and under good management. 

However, Bristol City Council is consulting on plans to introduce an additional licensing scheme – called houses in multiple occupancy (HMO) – in a dozen wards around Bristol. 

If approved, landlords with shared houses in these areas can pay for an extra licence which will theoretically cover the costs of council inspection teams conducting mandatory checks.

There’s also the threat of the Private Members’ Bill, which aims to give tenants the power to claim landlords are in breach of contract if the property is unfit for habitation. 

Speak to the experts

Landlords are sailing in increasingly choppy waters at the moment and it’s more important than ever to be aware of the Revenue’s changes. 

To find out more, or for information on how to get started as a landlord, get in touch with our expert Jeni McRae by calling 01454 619900 or email us at advice@dunkleys.accountants 

What can we do for you?

If there’s anything you’d like to know about Dunkley’s, we’d love to hear from you.