SOS for private landlords over Osborne tax

Tax changes aimed at cooling the London market have meant that many landlords across the UK have been left with no choice but to evict tenants and sell-up or increase their rents. Picture: Jane Barlow
Tax changes aimed at cooling the London market have meant that many landlords across the UK have been left with no choice but to evict tenants and sell-up or increase their rents. Picture: Jane Barlow
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Thousands of buy-to-let landlords could be forced out of business when tax demands land early next year, according to a Scottish property expert.

In January, landlords will face having to pay significantly higher income tax bills as measures brought in by former chancellor George Osborne start to bite.

Paul Smith, chief executive of Helensburgh-based property investment adviser Touchstone Education, warned the tax demands could “spell disaster” for thousands of landlords and place further stress on local authority housing.

His comments came on the back of a warning last month by Scottish property management firm DJ Alexander that a flatlining of rental growth will see an exodus of landlords from the private rented sector.

From April 2017, the amount of income tax relief landlords can claim on residential property finance costs was restricted to the basic rate of tax. The changes also apply to income earned by UK taxpayers on holiday properties overseas. The shake-up will require them to pay significantly higher tax bills than in the past, in some cases a doubling or trebling of previous rates. The move comes on top of increases in stamp duty and the Land and Buildings Transaction Tax (LBTT) in Scotland.

Smith said the tax changes were aimed at cooling the London market, but have meant that many landlords across the UK have been left with no choice but to evict tenants and sell-up or to increase their rents.

“Thousands have already exited the buy-to-let market, switching their investments into commercial properties or serviced accommodation. Those who remain will now have to pay significantly higher income tax bills for the first time,” he said.

At a recent seminar staged by Smith, one landlord delegate discovered he owed £120,000 in additional tax to be paid by the end of January.

The tax rises will compound static rental growth in many parts of the country, highlighted by figures released by Edinburgh-based DJ Alexander last month. Although the average private housing rental price has increased by 0.6 per cent in Scotland over the past year, in the medium-term growth is poor. In Scotland annual rental price growth was last above 2 per cent in June 2015 and has fallen steadily, even going into negative territory four times since then.

David Alexander, managing director of DJ Alexander, said that although there “probably won’t be many tears shed for private sector landlords leaving the Scottish market”, he stressed they play an essential part in providing vital housing stock. The Scottish private rented sector has doubled in the past 15 years and now accounts for over 15 per cent of all housing.