The change makes it so landlords can only deduct 75% of their mortgage interest from their rental income when working out their taxable profits.
The first reduction in mortgage tax relief for buy-to-let landlords came into force today.
The change makes it so landlords can only deduct 75% of their mortgage interest from their rental income when working out their taxable profits.
From next year this will drop to 50%, before falling to 25% in 2019 and finally in 2020 they will be taxed on all their income, including rent, after which they can only claim a 20% tax credit on the cost of mortgage interest.
Shaun Church, director at Private Finance, said: “The new mortgage interest tax relief rules for landlords are threatening to become an example of government regulation resulting in unintended consequences.
“By hitting landlords’ profits, the changes may ultimately make it even more difficult for prospective first-time buyers to get on to the housing ladder.
“Not being able to fully deduct finance costs from their taxable income will leave some landlords with a tax bill that outweighs their profits.”
He added: “As a result, many will look to increase rents to compensate for the loss in revenue. Not only this, the changes are also limiting landlords’ investment appetite.
“With fewer landlords investing in new buy-to-let properties at a time of already restricted housing supply, and rental demand remaining high, this too could result in higher rents.”
He went on to say the only way of getting round these changes is investing through a limited company, a route that is growing more popular.
