Rents set to rise as Budget hits landlords

Almost two-third of landlords are considering raising rents as a result of summer Budget tax changes, research has found.

In the summer Budget on 8 July, Chancellor George Osborne announced that mortgage interest relief for residential landlords would be restricted to the 20 per cent basic rate of income tax, phased in over four years from April 2017.

Currently, individual landlords can deduct their costs – including mortgage interest – from profits before they pay tax, with higher income landlords receiving tax relief at 40 per cent or 45 per cent.

Interim findings from a survey of landlords by the Residential Landlords Association (RLA), published on 21 July, found that 65 per cent of respondents were now considering increasing rents as a2016ect result of the Budget.

Mr Osborne had argued that landlords were taxed more favourably than home owners but the independent Institute for Fiscal Studies said that Budget documents stating the current regimes puts investing in a rental property at an advantage as “plain wrong”.

RLA chairman Alan Ward said: “The belief that landlords should be compared to home owners is like comparing apples with pears. The two are vastly different. It’s time the Treasury recognised residential landlords as a business.”

Meanwhile, a consultation has been launched into another summer Budget measure reforming landlords’ wear and tear tax allowance. Currently, residential landlords can offset ten per cent of annual rental income against tax as a furnishings wear and tear allowance.

From April 2016, the government intends that they instead be required to deduct the actual cost of replacing furnishings from pre-tax earnings. A consultation into the measure was launched on 17 July and will run until 9 October.

The National Landlords Association said it broadly welcomed the move but that it would be calling for transitional provisions to ensure that landlords who had recently invested in furnishings – planning to offset the cost over several years using the allowance – were not disadvantaged.

Link: Wear and tear allowance consultation