Buy-to-let landlords lose their tax breaks

MIDDLE-CLASS landlords will pay thousands of pounds extra every year after generous buy-to-let tax breaks were axed.

In an attempt to appease first-time buyers and temper the booming buy-to-let industry, wealthier landlords will no longer receive higher rate tax relief.

The radical move is expected to hit one in five landlords, or almost half a million people.

All landlords can currently claim back money on the interest paid on their mortgage at the highest rate of income tax they pay, meaning the wealthiest can claim at a rate of up to 45 per cent.

But this costs the Treasury more than £6billion a year and has been accused of unfairly favouring the growing army of landlords over ordinary homebuyers.

Now George Osborne has announced richer landlords who currently receive 40 per cent higher rate or 45 per cent top rate tax relief on their earnings will only receive the basic rate tax relief of 20 per cent.

The Treasury said it would phase in the restrictions over four years in an attempt to ‘shift the balance between landlords and homeowners’. In further cuts to landlords’ perks, they will soon have to prove they are making improvements to the properties they let or lose their ‘wear and tear allowance’.

At present, landlords of furnished properties can deduct 10 per cent of their rent from their profit to account for the money they spend on wear and tear, irrespective of whether they have actually updated their rental properties.

But from April next year, they will have to show that they have replaced their furnishings in order to enjoy this tax break. Crit-

‘A more level playing field’

ics said the new rules were ‘a mistake’ and warned that landlords would instead push up rents to compensate for the lost tax relief. Paul Emery, a tax partner at accountancy firm PricewaterhouseCooper, said: ‘Clearly this is going to make landlords put up rents, and does nothing to resolve the bigger issues of a lack of housing supply and credit availability which is creeping up.’

Mr Osborne said: ‘Buy-to-let landlords have a huge advantage in the market as they can offset their mortgage interest payments against their income, whereas home buyers cannot. And the better off the landlord, the more tax relief they get.’

He added that the reforms would create ‘a more level playing field between those buying a home to let, and those who are buying a home to live in’. Analysis by finan- cial consultants Deloitte found that a landlord with a 25 per cent deposit on a typical London home worth £493,000 and receiving a 5 per cent rental yield would lose £3,000 a year from the changes.

A landlord with a £150,000 flat in Birmingham, a 25 per cent deposit and a 5 per cent rental yield would lose £900 a year.

It follows a huge boom in amateur landlords investing in property in recent years, with buy-to-let now accounting for a fifth of all new home loans. In 2013 there were 2.1million landlords in Britain, up from 1.5million in 2007.

The Bank of England has warned that the buy-to-let bubble could burst when interest rates rise because landlords are more ‘vulnerable’ to hikes in mortgages and could be forced to sell their properties.

Experts claim the rush to buy investment properties in recent years has contributed to Britain’s desperate housing shortage.

Yesterday shares in housebuilders, estate agents and buy-to-let lenders tumbled.