7th
Sep 2015
The Government has recently released a statement in response the landlord petition against the proposed changes outlined in the summer budget to tax relief on buy-to-let mortgages.
The changes will come into force from April 2017 and means that landlords will only be able to claim back the basic rate of tax relief on their mortgage payments, seriously reducing their profits.
A London based landlord set up the petition and acquired over 23,000 signatures that was sent to the government.
In its statement the government explained that their rationale was to ‘create’ a fairer tax system and forecasted that less than 20% of landlords will be affected.
The government also said that it regarded income derived from renting ‘homes’ as similar to shares’ payments and was therefore passive income. The tax relief for landlords was unfair as homeowners are unable to claim receive the same.
The HM Treasury said: “Landlords are currently able to offset their mortgage interest and other finance costs against their property income, reducing their tax liability. This relief is not available for ordinary homebuyers and not available to those investing in other assets such as shares. Currently the landlords with the largest incomes benefit the most, receiving relief at their marginal tax rates of 40% or 45%.
“By restricting finance cost relief available to the basic rate of income tax (20%) all finance costs incurred by individual landlords will be treated the same by the tax system. This recognises the benefits to the economy that investment in property can bring but ensures the landlords with the largest incomes will no longer benefit from higher rates of tax relief.
“By unifying the treatment of finance costs for all individual landlords, the Government is reducing the distortion between property investment and investment in other assets, and reducing the advantage landlords may have in the property market over ordinary homebuyers.”
Richard Merrick of PIMS commented: “What a ridiculous statement saying that renting out homes is a passive income. This is in spite of having to comply with ever increasing rules regulations, that include ‘Right to rent’ checks effectively immigration control, all energy safety compliance and licensing.
“How can letting out residential property be passive income with all the regulations that are heaped upon landlords’ shoulders?”
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