Will Landlord Taxes and Regulations Cause a Shortage of Rental Property in the Future?

A flurry of tax changes and regulations introduced in recent years could lead to a severe shortage of rental property in the UK. Many landlords, frustrated by reduced returns and additional work, are “falling out of love” with the property market and choosing to cash out.

Recent findings by the Nottingham Building Society found that more than 1 million landlords plan to review their portfolios over the next year. Worryingly for the rental market, the number planning to sell is greater than the number of those looking to buy.

What Tax Changes and Landlord Regulations are Affecting the Market?

Taxes and legislative changes in recent years have become significant factors in driving out buy-to-let investors.

Here are some of the changes that landlords must contend with during April 2021.

Buy-to-Let Mortgage Tax Relief: 2021 is the first full year when landlords can’t deduct mortgage expenses from their rental income. Since 2015, the deductible amount has been decreasing and has been replaced with a 20% tax credit. This change has hit higher-rate taxpayers hardest.

Private Residence Relief Restrictions: This is the first full year that Private Residence Relief (PRR) programs are restricted. PPR allowed investors Capital Gains Tax relief when selling buy-to-let property. Now, up to £40,000 of lettings relief only applies to landlords who share with their tenants.

Buy-to-Let Income Tax: Personal tax has stayed at £12,500, but the higher rate threshold has increased to £50,000. Landlords will pay 40% on profits above this level.

Stamp Duty Holiday: The Stamp Duty Holiday ended 30th June 2021. Homebuyers in the UK were given free stamp duty on homes valued below £500,000. This scheme saved buyers as much as £15,000.

Capital Gains Tax Allowance: Capital Gains Taxes are up from £12,000 to £12,300. For investors selling a property, they pay less tax. However, Capital Gains taxes are higher for landlords, at 18% basic and 28% for higher and additional rate taxpayers.

Capital Gains Taxes on Buy-to-Let Properties:
A freeze on Capital Gains Taxes could mean landlords face more considerable tax burdens when selling a home.

What Does This Mean for the Future of Buy-to-Let Landlords?

The government’s aggressive regulations and taxes have made property investing a hostile environment for many buy-to-let landlords. There is a feeling that Downing Street is intent on making life difficult for landlords by favouring tenants.

By making home investment less profitable and more complicated, many landlords are choosing to disengage with the market. Indeed, there has been a fall of 30% in the number of buy-to-let mortgages between 2014-15 to 2018-19.

Less competition from property investors is good news for first-time buyers. However, it could lead to a shortage of rental properties that will disproportionately affect renters on lower budgets. These issues could then raise rents and exacerbate the housing shortage in major UK cities.

If you are a landlord looking for an alternative way to earn attractive returns from UK property without being ‘hands-on’, visit Property Forum CEO Nicholas Wallwork’s investment company Redbrick.

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