Thousands of buy-to-let landlords face going out of business in the new year when punitive tax rises introduced by former Chancellor George Osborne start to bite, property investment experts have warned.
They fear a looming housing crisis as the measures, aimed at cooling the London property market by discouraging people from investing in residential property, are now coming to fruition.
The UK’s 2.3million private residential landlords have already endured a 3% hike in stamp duty (Land and Buildings transaction Tax in Scotland) and the introduction of stress tests for buy-to-let mortgages.
In January they will face significantly higher Income Tax bills, with the first stage in the phasing-out of mortgage interest tax relief on rental income.
Tax demands due at the end of the month could spell disaster for thousands of landlords, placing further stress on local authority housing and making many more people homeless, according to Paul Smith, chief executive of Doncaster-based Touchstone Education, which runs courses in property investment across the UK.
From April 2017, the amount of Income Tax relief landlords can claim on residential property finance costs was restricted to the basic rate of tax. The changes also apply to income earned by UK taxpayers on holiday properties overseas.
The changes will require them to pay significantly higher tax bills than in the past, in some cases a doubling or trebling of previous rates.
A survey by Tenant Referencing UK earlier this year found that 70% of landlords were unaware of the changes, contained in Section 24 of the Finance Bill 2015-16, also known as The Tenant Tax.
At the same time, headline rates of Capital Gains Tax (CGT) paid on profits from asset sales were cut from 18% to 10% for basic rate taxpayers and from 28% to 20% for higher rate taxpayers.
Smith said: “These changes are so draconian that landlords have been left with no choice but to evict tenants and sell-up or to increase their rents.
“Thousands have already exited the buy-to-let market, switching their investments into commercial properties or serviced accommodation.
“Those who remain will now have to pay significantly higher Income Tax bills for the first time and we know from those attending our courses, most are unaware of the changes.
“Landlords who file Income Tax returns at the end of January will have to pay-up the following day and many don’t know that they are sleepwalking towards bankruptcy.”