Over the past few weeks on the Landlord Debt Advisory blog, we’ve been running a series of articles about the Section 24 changes to mortgage tax relief.
In previous articles we’ve looked at how the reforms will change the way in which landlords are taxed and why they were introduced. Now, in the third article in our series, we look at whether or not Section 24 will lead to rents going up.
Under previous mortgage tax relief rules, landlords could offset the cost of their mortgage interest against their tax bill. This was in keeping with established tax practices in which businesses are taxed on their profits, not revenue.
From April of this year, however, this is being phased out, restricting the amount of mortgage interest landlords can offset. By April 2020, landlords in the higher rate tax bracket will only receive half of the relief they currently get, meaning their tax bill will eat into their rental income significantly.
Faced with the prospect of having their income significantly reduced, if not wiped out completely, many landlords will have little choice but to increase rents in order to compensate for the much higher tax bills they will be facing as Section 24 is rolled out.
Property expert and residential landlord Dr Rosalind Beck has warned that rents are likely to rise ‘dramatically’ as a result of Section 24.
She said; “The first recourse to deal with this catastrophic situation is to increase rents. Landlords with the greatest finance costs will face the most pressure to do this, this can include landlords with a few very expensive properties with high finance costs, but will most likely affect portfolio landlords with many properties, often housing low-income tenants and/or those on benefits.
“As a portfolio landlord myself, I increased rents for the first time on tenants in situ, by 5% following the 2015 Autumn Statement, when George Osborne did not reverse Section 24, and then by a further 5% April 2017, when Philip Hammond also did not reverse it.”
Alan Ward, chairman of the Residential Landlords Association, agrees. According to Mr Ward; “It is unfortunately tenants who will end up paying the price, either through higher rent bills or finding it more difficult to find somewhere suitable to live.”
If you’re a landlord affected by Section 24 or Stamp Duty changes and worried about your finances, contact Landlord Debt Advisory on 0161 222 4311 or online at landlorddebtadvisory.com for a consultation with a member of our expert team.