CML warns against new buy-to-let tax and says it could see rents rise
A leading financial organisation has warned that the Chancellor's surprise plans to tax buy-to-let profits could have a negative impact on the sector and lead to rent rises.
In their first report since George Osborne's announcement in July, the Council of Mortgage Lenders says that the plans are likely to “deter” landlords and damage the rental sector.
How the new buy-to-let tax will affect landlords
Under the changes, all higher and additional rate landlords will face a higher bill for income from rental property. This is because they will no longer to be able to deduct the cost of their mortgage interest from their rental income. Tax will be applied to the rent received rather than what is left over after the mortgage interest has been paid.
While the Chancellor targeted higher rate taxpayers with his proposals - those paying 40% or 45% tax - other taxpayers could end up paying significantly more as the changes may push them into a higher bracket.
Growth in buy-to-let sector under threat
In its first report on the proposed changes, the Council of Mortgage Lenders (CML) says that the recent growth in the buy-to-let market is under threat from the Chancellor's plans. The Daily Telegraph reports that banks have until now been silent on the controversial tax changes but have now spoken out.
The report describes a “sudden uncertainty” in the sector as a result of “the tax changes announced by the Chancellor in his summer Budget, as well as regulatory developments”.
The CML said the increased tax would “be likely to deter some landlords from expanding their portfolios, and may encourage others to reduce their property holdings”. The lending organisation also predicted that the response of some landlords would be to “increase rents to cover their additional tax liabilities”.
The CML also believes that the tax changes will affect average landlords with a few properties rather than very wealthy property owners. This is because the tax will only affect those people with mortgages - meaning rich landlords who tend to buy properties for cash or through companies are not subject to the increase.
Keith Osborne, editor of Whathouse.com, says: "The CML has finally broken its silence on the controversial tax plans and believes that it could have a detrimental effect on the buy-to-let sector.
"Clearly there will be many landlords with a small portfolio of properties that could see the tax they pay exceed the net income they receive from the property. This could lead to rent increases or result in some landlords deciding to exit the market entirely."