This month, changes to the tax rules for buy-to-let landlords mean many of them will pay more tax in the 2017/2018 tax year.
Before the current tax year, landlords could offset all of the interest payments on a commercial mortgage against their profits. From April 6th 2017, landlords can only offset 75% of their interest payments. This will be reduced in subsequent tax years, and by 2020 no interest rate can be offset. Landlords paying a higher rate of tax will be particularly affected by the reductions.
The tax changes were announced in the 2015 Budget and the four-year phasing of the reductions has given landlords time to prepare for them.
There are a number of ways is which landlords are coping with their cost increases other than raising rents. Some have formed limited companies that pay less tax than individual landlords. There are other costs involved in setting up and running a limited company.
Some landlords have diversified by investing in commercial and semi-commercial property. Landlords with London properties have sold them and bought properties in other UK regions where rental yields are higher and property is cheaper.
The 2016 increase in stamp duty, and the abolishing of the mortgage interest tax relief, could be indications that the government is deterring buy-to-let investments. However, with low interest rates on commercial mortgages and high demand for rental properties, buy-to-let landlords are continuing to invest in property and find new ways to make sure their costs are covered.