The Future of Buy-to-Let

27 October 2015

As noted in a previous article, Buy-to-Let has seen an increase in pensioners buying into the scheme as reforms rolled out by George Osborn gave them freedom to access their pension pots. But the scheme has seen a backlash, as the government have proposed plans to impose more taxes on those who want to invest in Buy-to-Let.

The Telegraph states in one article that currently, landlords pay income tax on profits they make after they deduct the costs of letting their property – which include the costs of mortgage interest – from their rental income. But with changes to be implemented in the future by the Chancellor, this will be withdrawn, and instead landlords will get a tax credit worth 20 per cent of the interest they paid for the year. It would mean that Buy-to-Let investors will see an increase in their tax bills. Another tax that landlords have to pay is the capital gains tax, which the Telegraph reports is charged at 28 per cent of the gain for higher-rate tax payers. The landlords pay this when any gains are made when their property is sold.

When George Osborn announced plans to slash the mortgage interest tax relief, it means that landlords in the Buy-to-Let sector would see a fall in their earnings, but it would call for a boost in the sector for first-time buyers. According to the website, currently, tax relief costs the Treasury an estimated £6.3 billion every year. With this removal of relief, more money will be saved when the change will be implemented. These reforms will have a negative impact on Buy-to-Let investors and landlords, who will see the scheme now as something of a curse more than a reliable way to increase profits.

The sector has even been hit by a license fee that landlords must pay on their properties. In Croydon, the council has introduced a compulsory licensing of landlords from this month, who must pay £750 per property every five years. Under the scheme, any landlord without a license faces a fine of up to £20,000 and those who breach the terms of their license can be prosecuted and fined up to £5000.

No matter how you look at it, it seems landlords in Buy-to-Let will be suffering more in the future than any other sector in the housing market. Many landlords in this scheme will be questioning whether it was the right investment to choose, and whether it would be best to stay in it for the long term. Either way, Buy-to-Let has seen major changes recently that have greatly affected it, as the government seems to be in favour of helping first-time buyers.