Rented property tenants with landlords in Bristol could face potential rent increases of up to 30% as a result of tax changes, analysis has found from our reading this week.
Many critics believe that the recent tax changes, in particular, the 3% stamp duty surcharge for those with second properties, are having a negative effect on the supply of rental properties, and are not the neutral non-discriminatory system that the government has suggested.
Professor of financial economics at Imperial College London, David Miles, says that the planned tax changes should be scrapped:
“Stamp duty is now being levied at a higher rate on properties bought to be rented. Most properties bought by private buy to let investors will pay an extra 3% in tax. And starting from April 2017 the rate at which interest on mortgages used to acquire buy to let properties can be offset against tax on rental income will be reduced from an investor’s marginal income tax rate down to the basic rate,” says Miles.
He says that it is difficult to understand why the Government would want to deter provision of private rented accommodation from smaller landlords and that the changes will not make it easier for first time buyers as was planned.
Research suggests that landlords would need to raise rents between 20% and 30% to offset the impact of the Government tax rises.
“The effects of the tax changes are clearly large. Generally, rents would need to rise between 20% and 30% to offset them, more often than not rents need to rise by closer to 30%. The impact of the reduced tax deductibility of interest payments, which affects cash flows every year, is substantially larger than the impact of higher stamp duty, which affects cash flows only at purchase and is spread over the length of the landlord’s investment,” Miles explained.
Passing on costs
Separate research also found that around a quarter of buy-to-let landlords in the UK are passing on increased costs to their tenants as a result of the cap on tax relief being phased in from April this year.
Levels of awareness about the implications of the tax relief changes are rising, with 58% of landlords saying that they have increased rent, or plan to in the near future, the company’s latest Private Rented Sector Trends report, based on interviews with more than 200 experienced landlords, found.
The Residential Landlords Association (RLA) has also found that the majority of landlords will be negatively impacted by the tax changes and has called for the Government to use the extra revenue it will receive from its stamp duty levy to halt the implementation of the mortgage interest relief changes.
The impact on Bristol property landlords and tenants could be considerable – we will, of course, monitor this for our landlord clients and tenant customers alike during 2017.
To find out more, simply contact our independent lettings agency on Gloucester Road here.