Home / Insights / Blog / Setback For Buy-to-Let Landlords

Setback For Buy-to-Let Landlords

Setback For Buy-to-Let Landlords

Buckinghamshire Buy to Let

The High Court has dismissed a legal challenge brought by buy-to-let landlords opposed to tax changes that will see them face new limits on how much of their mortgage interest payments they can offset against tax bills. The landlords were represented by Cherie Booth QC. Timothy Brennan QC, representing HMRC and the Treasury, said the claim was unarguable: “There are cases which justify the courts looking at them in the public interest. This is not one of them.”

Speaking outside the court after the verdict, Cherie Booth commented: “We will continue to engage with the government to make sure the message comes over about the inherent unfairness of this tax. It’s not over yet.”

CONTACT OUR coveyancing and property solicitors today

The case was brought by landlord lobby group ‘Axe The Tenant Tax’ who argue that the rule change denies individual landlords the same rights as businesses, which are only taxed on the profit they make, and not their turnover. Currently landlords can claim tax relief on mortgage payments at their income tax rate – up to 45%. This relief is being reduced down to 20% over the next four years. This loss of relief, combined with the extra 3% stamp duty that buy-to-let landlords now have to pay on purchase of a property, is contributing to making the outlook for landlords more challenging. Additionally, financial institutions from next year must introduce tougher affordability checks to ensure borrowers could endure a significant interest rate increases. If you are interested in further information on the options and landscape for buy-to-let investment contact us.

Increase in limited company investment

The new rules are spurring more landlords to form limited companies to manage their property investments. The new rules currently only apply to individuals not companies. Figures from brokers Mortgages for Business estimate that 63% of applications for buy-to-let landlords are being made via limited companies, this compares to 21% before the Chancellor announced the new measures in July 2015.

The figures include both investors making new house purchases and landlords setting up companies and then selling their existing properties into them. The share of buy-to-let products available to limited companies has also risen. Limited company mortgages now represents 16% of all products, a 3% increase on the first half of the year. However, accountants have cautioned that there could be a potential double layer of tax as landlords may be taxed both in the company and on the extraction of their money.

Buy-to-let interest remains strong

Notwithstanding these developments Rightmove has recently reported that inquiries for buy-to-let properties has jumped 30% since May . It adds that that the number of newly marketed rental properties increased by 6% in the third quarter of this year compared to the same period in 2015. In London, that number was 15%, where as a consequence average rent fell by 0.7%.

Rightmove’s head of lettings Sam Mitchell said: “Investor activity has bounced back following the stamp duty changes, though some agents report that many are looking to knock sellers down on their asking prices to make up for the additional stamp duty they now need to pay.”

The figures from Rightmove also highlighted that seaside properties are proving popular with buy-to-let investors. Rightmove said properties in St Leonards-on-Sea, in East Sussex, and Clacton-on-Sea and Westcliff-on-Sea, both in Essex, tended to be making particularly strong returns for those who made last-minute purchases before April 1, taking into account house price rises in recent months as well as the rents landlords can typically expect to make in these areas. For example, in the first quarter of 2016, the average price tag of a home in Westcliff-on-Sea was £203,860, but by the third quarter of this year it had increased by nearly £20,000 to reach £223,268.

Buckinghamshire’s conveyancing experts

IBB’s team of property and conveyancing solicitors is based in Chesham, Buckinghamshire and provides advice on all aspects of buying, selling and mortgaging property to clients throughout Buckinghamshire and surrounding areas. We are always happy to speak to you about the progress of your sale/purchase on the telephone at any time. For more information please call us today on 01494 790013 or 01494 790071 or email conveyancing@ibblaw.co.uk.