Mortgage interest relief changes for Landlords Budget 2015

Up until April 2017, landlords, whether individuals or corporate, can offset the amount of interest which they pay to their lenders annually on their mortgage against their tax bill.  Capital repayments do not qualify. Landlords are entitled to treat interest paid as an expense of their lettings business in the same way as any other business

Mortgage interest relief for landlords will be reduced in a ‘proportionate and gradual’ way, to bring the benefits for Buy to Let landlords in line with ‘Buy to Live’ buyers. This is George Osbornes way of market manipulation to hinder Higher Rate Tax Payers in favour of First Time Buyers – hindering competition instead of building more homes.

The system will be remain, but the tax relief will be restricted to the basic rate. The higher rate relief will start to be withdrawn over four years, starting in April 2017.

HMRC: Interest releif changes costs for individual landlords; suggests only One in Five landlords will be effected but the RLA in a “rent will rise” article outline that those 20% of landlords effected are often those that house the most families (i.e. more properties).

You can read the Chancellors Budget Speech, read the Budget Key announcements or read the Full Summer Budget 2015.

“Mortgage interest payments can be offset against income for buy-to-let landlords, an unfair advantage over people buying homes to live in, he says. This has fuelled buy-to-let mortgages, which are now 15% of the market. Mortgage interest relief will be restricted to the basic rate of interest” said George Osborne MP.

Landlord’s are not impressed from UK Property Traders to Property Tribes. Higher Rate Tax payers angry at a sever increase in costs, Lower Rate Tax payers worried about the president it sets and Conservatives questioning the Chancellors housing market manipulation.

The discussion has moved on to tax mitigation (not evasion) from LTD Companies to Trusts; an unintended consequence of Summer Budget 2015 having landlords head to there accountants for Tax Planning and asking about Limited Company Mortgages.

This oncoming change was predicted by the Residential Landlord Association (RLA) Policy Director Richard Jones whom wrote a report titled WHY MORTGAGE INTEREST TAX RELIEF IS VITAL TO THE PRIVATE RENTED SECTOR.. In the article it outlines “any other business rightly qualified for tax relief on interest on borrowed monies” and acquiring property to rent out is extremely capital intensive.  Most landlords are small businesses, many of which have to borrow to fund the purchase of properties.

Above all it would be tenants who would be affected.  The impact on tenants would be disastrous due to reduced investment in the Sector and higher rents to offset landlord’s extra costs. Like any other business it is ultimately the consumer of that business who bears the burden of tax because business taxes are passed on to consumers; in this case the tenants.

In a time of austerity where George Osborne needs to raise funds the higher rate tax payer landlords will take a hit and George Osborne gets to suggest he is helping first time buyers. To change mortgage tax interest relief would completely fly in the face of government policy and sends out the wrong signals of the wishes of the government to entice significant institutional investment.

In summery: The government will restrict the relief on finance costs that individual landlords of residential property can get to the basic rate of tax. The restriction will be phased in over 4 years, starting from April 2017. This change only effects higher rate tax payers of which HMRC estimates is 20% of all landlords.

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