Thousands of buy-to-let landlords are poised to throw in the towel and sell their properties in the coming months as they lose yet more generous tax breaks.
The scrapping of tax relief on mortgage interest payments, 우리카지노계열 that kicks in from the start of the new tax year in April, will be the final straw for many landlords as the financial mathematics no longer work.
One in four landlords now say they are considering selling a property over the next 12 months. That's equivalent to 500,000 of Britain's two million property investors.
Even those who will hang on to their buy-to-let properties face such hefty income cuts that just 14 per cent now feel 'confident' in their investments.
Short fuse: One in four landlords now say they are considering selling a property over the next 12 months
That compares to 56 per cent before this year's huge tax shake-up was triggered by one of George Osborne's final acts as Chancellor five years ago.
Meanwhile, the amount of money the Treasury is collecting from capital gains tax - seen by experts as an indicator of how many investment properties are being sold - is running at a record high.
This is in large part a result of landlords selling up ahead of the start of the new tax year, experts say.
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Will the new Chancellor give pension tax relief the chop?… My chef husband gets half his pay via tips in a 'tronc'… What could be in next month's Budget now Britain has a new… SIMON LAMBERT: Hacking back tax relief would mean an even… Share this article Share 75 shares John Stewart, policy manager for 우리카지노 the Residential Landlords Association, says: 'All the evidence shows that growing numbers of landlords are looking to sell properties as a result of the increased tax burden on the sector.'
Meera Chindooroy, policy and public affairs manager at the National Landlords Association, says: 'What we're witnessing in the market now is hardly surprising.
'When the Government first announced its intention to scrap tax relief on mortgage interest payments for buy-to-let landlords in 2015, we warned the decision would disrupt the supply of private rented property and we've been proved right.
'Our most recent data shows that many landlords are looking to reduce the size of their portfolios over the coming year. Landlords' confidence in the sector as an asset class has fallen to an all-time low.'
It is looking increasingly grim for landlords who had planned to rely on the rents from one or two properties to boost their retirement income.
So what are these momentous tax changes, what can you do about them - and is now really the time to throw in the towel?
The first major change was the 3 per cent stamp duty surcharge payable on second properties
WHAT'S HAPPENING TO THE MARKET?
The buy-to-let market has been blighted by a wave of tax attacks over the past four years.
George Osborne, the former Chancellor, wanted to deter amateur landlords because he believed they were snapping up homes that could have gone to young couples looking to get on the housing ladder. His almighty tax grab began in 2016.
The first major change was the 3 per cent stamp duty surcharge payable on second properties. So a typical property costing £300,000 immediately attracted an extra £9,000 in stamp duty.
On top of that, landlords were told in 2016 that they would no longer get an automatic 10 per cent discount on their tax bills for furnished lets to cover repairs to their properties for wear and tear. Instead, you had to show actual expenses on repairs to offset against your tax bill.
Now, landlords face an even bigger blow. From April 6 this year, they will no longer be able to deduct any of their mortgage interest payments before working out their tax liability.
This means that all rental income will be taxed at a landlord's highest marginal income tax rate. The only concession is a 20 per cent tax credit on mortgage finance costs.
Higher and additional rate taxpayers will be especially hit. The profits will become so meagre - and prone to being wiped away by unexpected costs and rental voids - that many landlords will feel it is not worth their time.
From April 6, all rental income will be taxed at a landlord's highest marginal income tax rate
HOW YOUR INCOME IS LIKELY TO CHANGE
Here's how the tax changes in April would affect a buy-to-let investor with a £300,000 property.
Let's say you borrowed 90 per cent of the value (or £270,000) to buy the house. You are on an interest-only mortgage (most buy-to-let landlords still have one of these deals) with an interest rate of 4 per cent. That means you pay the bank £900 a month, or £10,800 a year.
That's your outgoings - what about your incomings and the tax bill on your returns?
Say the tenants in the property pay you rent of £1,250 a month, or £15,000 a year.
Until 2017, you only paid tax on your 'profit'. This was simply the difference between your rental income (incomings) and the mortgage interest (outgoings) and worked out at £4,200.
So a 40 per cent taxpayer would have had to cough up £1,680 to Revenue & Customs, ultimately leaving them with £2,520 profit.
In 2017, the Government began slashing the proportion of mortgage interest you could deduct. This tax year, it is just 25 per cent - and from April, the allowance will be axed altogether.
Under the new rules, you will pay tax on your entire £15,000 rental income - less a new 20 per cent tax credit designed to offset some of the bill (the amount of mortgage relief interest you can claim has steadily been decreasing).
Working out your bill can seem fiddly, but you can use this simple formula. First, work out your tax bill before the credit is taken into account.
For a 40 per cent taxpayer, this is £6,000. The credit is the same for everyone at 20 per cent of the annual mortgage interest. So in our example, that's £2,160.
Take this sum away from the £6,000 and you are left with a final tax bill of £3,840. Add that to your £10,080 mortgage interest and 우리카지노주소 your total outgoings are £14,640.
The bottom line? Your final profits will be slashed to just £360 a year. No wonder so many landlords think it's no longer worth bothering.