Impending landlord tax changes will hurt agents too

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This is gonna hurt!

UPDATE: April 2017 – it’s happened, as of now the removal of relief for finance costs has begun!

UPDATE: There’s still no let up from HM Treasury about this ‘tenant tax’ but it’s good to see that more dissenting voices are speaking up in favour of landlords and letting agents: Bank of England Economist Slates Tax Changes!

Recent news from the National Landlords Association (NLA) shows that more than four hundred-thousand landlords who pay the basic rate of tax will be forced into a higher tax bracket from April next year (2017) as planned changes to landlord taxation come in to force.

The research shows that 46 per cent of current basic-rate tax-paying landlords say they will move up a tax bracket once the changes are fully phased in by 2021 – as they are left unable to deduct mortgage interest payments or other finance-related costs from their turnover before they declare their taxable income.

However, the NLA says that all landlords with borrowings could be at risk of seeing their tax liability increase regardless of their existing rate of tax, with the effects being felt most acutely by landlords in Central London, the East of England, and the West Midlands.

The scale of the problem

The exact impact will depend on landlords’ personal circumstances, such as whether or not they make any money from other sources, but the NLA has calculated the potential increase to landlords’ tax liability based on existing annual mortgage interest payments and portfolio size:

  • 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

Planning ahead

These findings show that a significant number of landlords will be hit hard by the changes, and they will no doubt be concerned about what lies ahead. Some will have clear plans for how to deal with the impact, but others may well be burying their heads in the sand and hoping for the best.

While there is a slim chance that the changes could still be amended in some way – thus minimising the impact on landlords – it’s certainly not an option that we’d recommend banking on happening. In fact, as many industry bodies have already concluded, the most likely outcome for those affected landlords will be to either sell-up – and end perfectly good tenancies – or to increase rents.

While the latter would represent a better solution for agents, either of these potentially conflict-driven scenarios place you bang in the middle and will require some sort of mediation. After all, that’s one of the many reasons landlords pay for an agent’s service.

Help your clients, help yourself

The NLA’s findings show that 15 per cent of landlords still say they don’t know whether the changes will affect them or not, so this makes even more of a case for agents to be making contact in order to assess their exposure.

So speak to your landlord clients now and find out how they will be affected. Above all, make sure that you communicate the value of the service you offer, because landlords will need to examine their outgoings in the near future and your fee could be one of the items underneath the magnifying glass.

Otherwise, as future tenancies come to an end, and landlords realise that their place in the market is no longer viable, it might mean the same for you.

For more information about the changes visit: https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords#policy-objective

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