We know that a lot of changes have occurred with regards higher rate tax for landlords with buy to let property and many of you would be forgiven for thinking that it is landlords that will be out of pocket, which may not necessarily be a bad thing, especially for those with multiple properties.
But what if we told you that ultimately it will be tenants that will suffer in the long run.
The changes brought in by the government saw tax relief on buy to let properties limited which consequently meant that some of Britain’s landlords were pushed into a higher tax bracket based on the income that they were receiving.
With this news, many of you would be forgiven for thinking that landlords could be reined in a lot more and that things may start to get fairer with regards to the buy to let market. Not a chance. Because of the tax implications, many landlords have pushed up their prices double to what they are being taxed for. In effect, if they are 10 per cent out of pocket, they are charging a tenant 20 per cent more in various things to cover the shortfall.
Many landlords have already heightened their prices to prepare for other changes upcoming. Currently landlords pay tax on the profit they make, but in 3 years’ time landlords will have to pay tax on their rental revenue.
The new taxation on landlords could see tenants struggle even more to find money for their rent, and could make it harder for people currently paying rent on a property to continue to do so if it goes up.
The fact of the matter is, some landlords will be in a position whereby they will have to put the prices of their rent up, or, sell up. And what do you think they’re going to do? They’re going to try their luck and heap more rent on already struggling tenants. Landlords are not just going to sell up because of the tax changes, they are first going to say how far tenants are prepared to go with regards rent increases. So who’s the losers here? It’s not the landlords, it’s the poor tenants. It always will be the tenants. People are always going to want to live on their own and tenants, in many instances, get attached to a certain property and would be devastated if they lost it – landlords know this so in a lot of cases landlords will be able to pass this tax problem on to the tenant (getting them to cover the cost of changes through rent.)
Scarily, many landlords that are to be hit by the new tax implementations, have already said on record that they will be increasing rents by a few hundred pounds, which could be the difference between tenants enjoying their home and having to leave the property that they love. Even if tenants can afford the extra monthly rise in rents, it will still impact on their quality of life and will affect how much they have left over at the end of the month. It could ultimately put many tenants on the bread line., creating a whole new type of rental poverty.
It’s a case of trying to tax the rich but we all know that landlords won’t be too much out of pocket if they can pass the expense on. At the end of the day, the proverbial rolls downhill. Rent rises are going to happen. Fact.
Finally, from a landlord’s point of view, there are a few things that can be done to enable the hit not to be so bad for tenants. Time will tell to see how many do these rather than passing the expense on. A lot are considering the idea of remortgaging – but this will have to be done quickly, as a lot of good deals are on the way out.
Some other advice from people in the know is to become a company. Becoming a company will mean that they can exploit the new lower corporation tax threshold that the government has set. A solicitor will look into the ins and outs for the landlord to see if it is worth going down that route.