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Landlords' taxable profit set to 'sharply increase'

With the Government now almost two months into rolling out Section 24 and its new buy-to-let tax relief system, online letting agent Upad believes landlords will see an average 13% increase in their taxable profit from 2017/18 to 2018/19.

The changes, which started being phased in on 6th April 2017, mean that landlords must now pay tax on turnover, rather than the difference between rental income and mortgage interest. Until April, landlords could deduct the full cost of their mortgage interest payments, or any other property finance, on their rental properties before they paid tax. Two months in, mortgage, loan and overdraft interest costs can no longer be considered in calculating taxable rental income. The changes will be phased in gradually over the next four years, and by 2020, 100% of buy-to-let finance costs will be restricted to the basic tax rate of only 20%.

The research also revealed that 20% of landlords will increase rents to help mitigate the cost of their new tax bill, meaning tenants could face a permanent increase in rent as a direct result of the changes.

James Davis, CEO and founder of, commented: “Despite the changes being gradually introduced over the next four years, our latest research shows already how out of pocket landlords are set to be by 2018/19 alone, as they see a big rise in their tax bills and a substantial hit to their profits. Those who are in the higher rate tax bracket of 40% will be the worst affected but others could find themselves being tipped into the higher tax bracket despite their income not having increased, which will leave many renting at a loss and subsidising their property every month.

“Rent rises are likely to be deeply unpopular with tenants so landlords will need to think about adding some cost-effective, tax deductible improvements to their properties that justify asking for an increase. For instance, by providing complimentary Wi-Fi, upgrading the appliances or giving the kitchen or bathroom a makeover.

“You may need to sell off some low-yielding property, reduce some of your mortgage payments or change the ownership of your portfolio to protect the profitability of your business. Options include setting up a company to buy property or if you already own a rental property as a private individual, you could transfer it to a limited company. Alternatively, if you own the property with a lower rate tax payer, you can transfer more of the rent to them to limit your overall tax bill. Another option could be to switch to fully furnished holiday lettings as these are exempt from the tax changes so you can still claim full mortgage interest tax relief.

“Landlords should also look at ways to negotiate with their letting agent and be vigilant to agents trying to increase their commission or other fees, as they look to flesh out their profits following the ban on tenancy fees. Landlords can minimise the impact of the tax changes through saving money spent on advertising and tenancy set-up by using an online letting agent like ourselves.”

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