New data AXA Insurance suggests that nearly 50% of landlords plan to quit the rental market by 2020 because they feel unfairly targeted by the latest changes to tax relief. This comes in spite of government assurances that 82% of private property lessors will not be paying more money as a result of the new rules.
The latest tax relief laws, which came into force this month, mean that landlords can no longer deduct the cost of their mortgage and borrowings from their income for tax purposes. Instead, they will receive a basic rate relief of 20% of the lowest of their finance costs, property profits or adjusted total income deduction from their final tax bill. These changes follow on from the Stamp Duty surcharge on additional properties and removal of the wear and tear allowance in 2015.
Despite almost half of surveyed landlords saying they’ll leave the rental market, the way they will go about it seems to be uncertain. Just 21% told AXA Insurance that they would sell all of their rental properties, while 10% said they’d reduce their portfolio, 7% were planning to switch to commercial property and 8% to transfer ownership to family for tax purposes.
Separately, the Royal Institute of Chartered Surveyors (RICS) has published predictions that these changes will lead to rents rising by as much as 25% over the next five years. Alan Ward of the Residential Landlords Association (RLA) has echoed these concerns, noting that a decline in landlords "will only reduce the growth in supply, driving up the cost of rents."
Need for consistency
While some prepare to move out of the sector, the other 50% of landlords who have no plans to quit will have to consider how the new changes will impact their operations. Landlords will need to calculate how the tax changes will affect them and, if they face additional costs, consider whether tenants can absorb them.
Some industry observers have predicted a higher probability of tenant defaults in 2017. Landlords must therefore be prepared to support their tenants and have systems in place to protect their own finances if the worst does happen.
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