11:25 AM, 3rd October 2018, About 3 years ago
Shawbrook Bank have released their 2018 Buy to Let report and it contains some of the most succinct analysis and graphs of the current BTL market and Tax regime for Landlords seen.
Click Here to download the full report.
“In this report, we update our Buy-to-let (BTL) market analysis, and dive deeper into the effects of the
changes to stamp duty, mortgage interest tax relief and the tightening of BTL mortgage underwriting rules. We also forecast BTL market activity up to 2023 and compare this forecast with a scenario in which the above mentioned changes were not introduced. This gives us an idea about the magnitude of the effect of these measures.”
On Section 24 Mortgage interest relief restrictions the report said:
“The stated policy objective of the change in the tax code is to make the system fairer ensuring that landlords with higher incomes no longer receive the most generous tax treatment’. However, as a consequence of this change many higher-rate paying BTL landlords will see the profitability of their investment decrease substantially.
As shown in Figure 6, a private landlord with a rental income of £5,000 per month and mortgage interest costs of £4,000 per month would be left with an after-tax profit of £600 according to the old tax rules, assuming the landlord pays 40% income tax on the net profit of £1,000. Once the changes are fully implemented in 2020, the same landlord would make a loss of £200 per month as the tax bill would rise from £400 to £1,200, exceeding the pre-tax profit. The changes will replace the full deductibility of mortgage interest rates with a flat rate rebate of 20%. This means the landlord needs to pay 40% income tax on the gross rental income of £5,000, amounting to £2,000, less £800 resulting from the 20% rebate of the £4,000 mortgage interest paid.
Generally, for higher rate tax payers BTL investments will become loss making if their mortgage interest cost is 75% of rental income or more.”
Click Here to download the full report
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