Buy-to-let tax change: Why is business-friendly George Osborne punishing landlords and renting business?

Richard Lambert
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"Landlords should not be punished for running a business or making profits" (Source: Getty)

The majority of landlords put their faith in the Conservative Party in May believing the Tories had a better understanding of private renting than the other parties. So when the chancellor announced restrictions on the tax relief on buy to let mortgages, it came as a shock, with many feeling betrayed.

The government claims the changes will create a more “level playing field” for those buying a home to live in and those buying to let. However, the overlap where a landlord and a first time buyer are going for the same homes is minimal. They are looking for different things. For example, no first time buyer would be interested in – or be able to afford – the kind of multi-unit shared house which a landlord would see as a stellar investment.

The “level playing field” is a sharp piece of political rhetoric, but it’s not founded on facts and means that the Treasury can continue to pick and choose when it treats landlords as businesses and when as investors. The only consistency in the answer is whichever raises the most money.

Read more: One in five landlords going out of business hit hard by tax break cuts

In the Finance Bill, the clause implementing the tax relief restriction is titled Relief for finance costs related to residential property businesses, so it would seem illogical to take away a relief that other businesses would be able to claim.

Anyone thinking of investing in property should now think very carefully if they are able to make it work once these changes come into force from 2017. Landlords already have a multitude of costs to contend with and many work to such tight margins that the smallest setback could push them into making a loss.

Contrary to popular assumptions, buy-to-let doesn’t offer lucrative returns. On average, rental yields stay below six per cent, which is why these changes will have massive implications, especially for the 136,000 who will be pushed into the higher tax bracket when their rents are added to their other income, so that they are effectively taxed on their turnover rather than profit.

Landlords are already doing the maths and considering their options. Some will set up limited companies, others will look to sell. No doubt the chancellor expected that, but I doubt he realised the number of people who will find themselves losing their child benefit as well as most or all of their profits, or the impact on those who have built up property portfolios to replace collapsed pensions.

Read more: Don't get burned by the buy-to-let boom

Landlords should not be punished for running a business or making profits. With social housing in long-term decline and mortgages still out of reach for many, the private rented sector plays an invaluable role in housing the growing population.

Landlords need to stand up for their rights and the good of the industry by lobbying their local MPs to tell them the truth of how the Budget will hit them and their tenants.

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