Tenants will bear the brunt of new UK buy-to-let tax

Tenants will bear the brunt of the UK government’s plan to raise buy-to-let taxes, experts and landlords have warned. Over 600 supporters of a campaign to fight the unfair changes gathered at a rally in London last week to raise awareness of what has been branded the “Tenant Tax”.

The tax change will mean that from April 2017, landlords will no longer be able to offset their mortgage interest from rental income before calculating their tax bill, effectively forcing landlords to pay tax before profit – a move that would go against standard business practice and also leave smaller landlords potentially making a loss.

Speaking at the event in Earl’s Court, Hayley Bradfield of Chartered Accountants Watts Gregory LLP accountancy told a large, passionate crowd that some landlords with high LTV financing could find themselves making a loss of thousands of pounds a year, with basic rate tax payers effectively forced into becoming higher rate tax payers. Landlords would therefore have no choice but to pass the hiked costs on to renters. The result? An indirect tax by the government on tenants, which is bad news for everyone.

In the last year, the average monthly rent has already risen by 3.5 per cent to £872. Now, a new survey from Kent Reliance shows that four in 10 landlords expect they will have to raise rents in next six months. Three quarters of those directly blame the impending sharp reduction in mortgage tax relief. Rents are predicted to rise by an average of 5.6 per cent (an average increase of around £49 per month for tenants).

Flatsharing website SpareRoom.co.uk were also at the event to highlight the impact such an increase would have. Matt Hutchinson, Communications Director for the portal, presented its own alarming research, showing that if rents rose by just £25 a month, one in four tenants would have to move. With the average rental rate at £747 per month in London, though, tenants would need (including deposits and administration fees) around £2,000 just to move to a room in a different property.

“If you’re going to demolish the buy-to-let sector, you need a plan,” said Hutchinson. “It doesn’t appear the government has a plan.”

While four in 10 are planning to raise rents, though, there are still a large number of landlords completely unaware of the situation. Chris Cooper, co-founder of the Tenant Tax campaign to bring about a judicial review of the law, is one of many landlords who use buy-to-let property for their pension. He warned people at the summit that landlords unaware of the tax are “sleepwalking into disaster”.

Other speakers at the event included Kriss Akabusi, a landlord and supporter of the campaign, and Conservative peer Lord Howard Flight, who blasted the tax change as “misconceived” and “hugely damaging” to the much-needed supply of rental accommodation in the UK.

“A number of backbenchers have woken up to realise it’s not a very Conservative policy,” he added.

National Landlords Association CEO Richard Lambert also backed the campaign, announcing that the group is donating £10,000 to support the application for judicial review, which is currently awaiting approval from the court. The Tenant Tax team, meanwhile, is raising money through crowdfunding to enable the legal challenge (led by Cherie Blair’s law firm, Omnia Strategy LLP) to continue.

“The buy to let market now sits firmly in the crosshairs of both politicians and regulators, and we are seeing landlords react,” comments Andy Golding, Chief Executive of OneSavings Bank, which trades under the Kent Reliance brand.

“Thousands hurried purchases to beat the stamp duty deadline, and the popularity of limited companies is soaring as investors seek to reduce tax exposure. But it is tenants who are feeling the real brunt. Rents are rising, and landlords will increase them further as they pass on the increased cost of running their businesses. Far from supporting tenants, recent intervention will see them bear a heavier financial burden.”

Whether you’re a tenant or a landlord, find out more about the fight back against the tax at www.tenanttax.co.uk.