As we reported before here, in 2017 landlords are bracing for the removal of a vital tax relief for residential landlords that begins to take effect in April of this year.

What are the changes?

Currently, the interest payments made on buy to let mortgages are a deductible expense, meaning only the landlord’s profits are taxable. And for landlords who sit in the highest tax bracket, they can claim tax relief at that level, which is currently 45%.

But that’s set to change, and by 2020 landlords will only be able to claim tax relief at the basic rate, which currently sits at 20%. Set to be phased in over the next four years, the wheels have been set in motion, and the changes will begin in less than three months.

In the 2017-18 tax year, 25% of financial costs will be subject to the new tax relief criteria, increasing to 50% in the 2018-19 tax year, 75% in 2019-20 before fully implementing from the 2020 tax year onwards.

What does this mean for the rental market?

Well, quite simply, it’s likely that many landlords will be forced to raise rental prices in order to compensate for the higher rates of tax they’re set to be subjected to – as otherwise their investments could be pushed into a state of unprofitability.

Research conducted by the Residential Landlords Association found that two thirds of its members reckon they’ll have to increase rents to compensate for the changes in tax rules. One third reportedly said prices would increase by around £300 next year; a further third reckon it could be as high as £600; and 7% say they’ll charge over £1000 more than they currently do.

And statistics from the National Landlords Association revealed that as many as 13% of landlords in Scotland could be directly affected and pushed into a higher tax bracket.

How to Keep Your Buy to Let Investment in the Green

Fiona Hindshaw Letting Director Clyde Property

We have asked Clyde Property’s Letting Director Fiona Hindshaw about what her advice would be for landlords. Fiona said:

“The new tax changes are a challenge for the buy to let market, forcing many Scottish landlords to consider increasing rents, but there are opportunities to overcome the changes with the right advice.

There are two very important things landlords have to do before April:

Firstly, we advise landlords to look into high yield areas to invest – this is something Clyde Property, as leading independent estate agent with over 30 years experience in the market can truly make a difference.

Secondly, we recommend all landlords have a good look into their finances. With interest rates at an all time low, it is well worth looking into options for financing buy to let properties. We recommend our partner, Mortgage Hub for reliable, professional independent advice on mortgages. We have been working with them for years because of their phenomenal track record.”

A Detailed Look into How the Tax Might Affect You

The tax changes will mean that many landlords will not only be subject to paying more Income Tax, but the changes could also push many into a higher tax bracket. In fact, the National Landlord’s Association reckons that as many as 440,000 landlords will be pushed into a higher tax bracket as a result of the changes.

An example given on explains how easily the change could push landlords up a tax bracket. Under current tax rules, a taxpayer letting out a property for £15,000 per year with an interest-only mortgage costing £10,800 per year would only pay tax on £4,200 (as that’s the only portion judged to be their income).

But from April this year, the full £15,000 will be considered the landlord’s income from the property. And if that landlord had a salaried job earning £35,000, the newly considered income means they would be judged to have an income of £50,000 (compared to just £39,200 before) meaning they are now in a higher tax bracket.

What are the benefits to working with the right letting agency?

It has never been more vital to have a reliable and professional letting agent on board.

We have the most transparent management platform for managing a property portfolio. Our portal MyClyde, allows landlords to keep up to date with all of the latest activity to do with their properties including things like inspection reports, photographs, rental and VAT statements, tenants correspondence, etc – from anywhere at any time.

With 96% of property rentals enquiries now taking place online, landlords can be rest assured that at Clyde Property, their portfolio is well represented on our professional, recently launched website.

Lastly, and we think most importantly, we’re available more than you’d think. Each of our 11 branches across Scotland open 7 days a week from 8.30am to 8pm. With 70% of property viewing scheduled for after 5pm or at the weekend, landlords can be rest assured that our team of letting experts are on hand when they’re needed most.

Clyde Property is a leading independent, multiple award winning estate and letting agent with 30 years’ experience in selling and letting property in Scotland. Just call your local Clyde Property branch today, for friendly, impartial advice on finding your next dream home.