What does the new 2017/2018 tax year hold for landlords?
The summer budget of 2015 will be a distant memory for most of us, but some of the proposals will finally be coming into play very soon.
From the new tax year next week (6th April 2017) landlords can no longer deduct 100% of their mortgage interest and other allowable expenses from their rental income, when calculating their tax liability.
Eventually the idea is that by April 2020, 100% of the mortgage interest and other allowable expenses will be disallowed – it is being phased in on a sliding scale from April 2017. The idea is that they will be replaced with a basic rate tax relief
The changes are contained in their original form in the Finance (No.2) Act 2015.
If you don’t have the time or energy to digest this, more basic guidance can be found on the following link.
The implication is that if you are a higher rate taxpayer this means that you will end up paying more income tax. The rules are complicated and so advice should be sought from your accountant in the first instance about the exact implications.
As a landlord faced with higher tax, the tendency may be to pass this on to their tenants by increasing their rent.
However landlords should be aware about how they should go about doing this so that they do not fall foul of the law. If there is a fixed tenancy, then the rent is set for the duration of that fixed tenancy unless you can get written agreement from your tenant for the increase, or there is written provision in the tenancy for the rent to be reviewed at certain intervals during the fixed term tenancy. After the end of the fixed tenancy, you can of course agree an increased rent for any new tenancy.
During a periodic tenancy you can increase the rent if this is agreed with the tenant or you serve one month’s written notice in the prescribed form. But your tenant will have the right to challenge the proposed increase at a tribunal. In such cases, many landlords will instead prepare to obtain possession of the property and find new tenants who can pay the increased rent.
The above applies to general tenancies which are let on assured short tenancies. Before you take any drastic action about increasing rent, you should seek advice early on.
What I fear is that landlords faced with the new rules will have little choice but to pass on the extra costs to tenants, or sell up their buy to let properties, and the result will be even less affordable rental accommodation for the masses.