Opportunities in Ireland as country plans to reinstate landlord tax relief, but nearly half a million British landlords will pay more tax from April 2017.
Landlords have had a rough time recently.
The new 3% Stamp Duty surcharge introduced earlier this year for anyone buying a second home has made investing in property far more expensive.
What's more, landlords will see the amount of tax relief they can claim on mortgage interest gradually reduced from next year.
Conversely, things are looking up for landlords wanting to invest in property in Ireland: the country has just announced it will reinstate full mortgage interest tax relief on rental income.
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What's changing in Ireland?
Michael Noonan, Ireland’s minister for finance, announced in his Budget statement last week that landlords will be able to claim 80% tax relief from next year. This allowance will increase by 5% each year until mortgage interest tax relief reaches 100% again.
Noonan says that the policy was introduced in 2009 to ‘rescue the public finances’, but now a housing crisis in Ireland means it is an ‘appropriate time’ to change the law.
Rents in Ireland have been rising since 2013. The most recent figures from the Irish Residential Tenancies Board, which manages the buy-to-let sector, found that there had been a 9.9% rise since last year.
Campaigners against the tax in Britain say what has happened in Ireland is proof that the tax doesn't work and that landlords offsetting an increased tax bill with higher rents is likely to happen when the law changes on mortgage interest tax relief for landlords next year.
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440,000 British landlords to pay more tax
The tax policy being scrapped in Ireland is similar to the one that is set to be imposed on British landlords next year.
By 2020 landlords will not be able to deduct mortgage interest from their rental income before calculating their tax bill. Instead the will be limited to a 20% basic rate reduction from their income tax liability for their finance costs.
The changes are being phased in from April 2017, and the move is expected to hit higher and additional-rate taxpayers hard.
However, new figures from the National Landlord Association (NLA) reveal that around 440,000 landlords who pay basic rate tax will be forced into a higher tax bracket when the rules change next year.
The NLA has estimated how a landlord’s tax liability will increase depending on their annual mortgage interest payments and on portfolio size:
- Single property - £3,600
- 2-3 properties - £8,600
- 4-5 properties- £16,300
- 5-10 properties - £18,200
- 11-19 properties - £24,900
- 20+ properties - £38,000
Richard Lambert, Chief Executive Officer at the NLA, said: “When the Government announced these changes last year, it claimed they would only hit a small proportion of higher-rate tax payers.
“The Government must look to amend these tax changes and minimise the impact on landlords and their tenants - something that could easily be achieved by applying the rules to only new loans written after April 2017.
“Unless this happens, landlords will face an impossible decision of whether to increase rents and cause misery for their tenants, or to sell-up, and force their tenants to find a new home”.
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Crackdown on rogue landlords
In other news the Government is also getting tough on rogue landlords who try to rent out tiny rooms.
It wants to impose a minimum bedroom size for shared homes in England. If the rules get the green light landlords won’t be able to rent out anything less than 6.52 square metres in homes of multiple occupancy.
Current minimum space standards set out in the Housing Act 1985 are only used as guidance, so the Govenrmetn wants to make it mandatory.
Housing and Planning Minister Gavin Barwell said: "In order to build a country that truly works for everyone we must ensure that everyone has somewhere safe and secure to live. These measures will give councils the powers they need to tackle poor-quality rental homes in their area. By driving rogue landlords that flout the rules out of business, we are raising standards and giving tenants the protection they need."
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