Incoming regulatory changes concerning Private Residence Relief (PRR) will place a higher tax burden on landlords – this move comes on top of the phasing-out of mortgage interest tax relief.
The government announced proposals to scrap tax relief on landlords in its 2018 Budget. The changes regarding PRR could raise as much as £470m for the Treasury, at the expense of landlords, according to accounting firm RSM UK.
This comes a matter of weeks after a report claimed as many as 24 per cent of landlords were considering selling properties, as a way of coping with higher tax burdens.
Rising tax burden
For some years, landlords had been able to deduct mortgage interest payments from rental income, helping reduce their overall tax burden. Incoming government policies regarding buy-to-let mortgage interest are already phasing-out the tax relief mechanism, with no proportion of a landlord’s interest expected to be deductible against rental income by April 2020.
Andrew Robins, a partner at RSM, reflected on the new regulatory changes, saying: “The rising tax burden could affect anybody who owns their own home, as nine months is not a long period to dispose of a home, especially in difficult economic times. The new rules will put additional pressure on homeowners who have moved and are finding it difficult to sell their former home.”
Wide impact on market
The government announced proposals to restrict income tax relief for landlords back in 2017, claiming in a press release that: “This will ensure that landlords with higher incomes no longer receive the most generous tax treatment.”
However, there is criticism that the move is far more wide-reaching than the government may have intended, with John Heron, director of mortgages at Paragon claiming that landlords quitting the property market due to these changes has been “impacting supply to the sector, ultimately making it more difficult for those that rely on the UK’s private rented sector for a home.”
Tony Gimple, founding director of Less Tax 4 Landlords, spoke on a property podcast recently, predicting that as soon as June 2019, individuals he deemed to be ‘social landlords’ can expect their tax bill to exceed their profit in the current tax year.