Has George Osborne dealt a killing blow to buy-to-let?

The full implications of Chancellor George Osborne’s tax changes, unveiled in July, are only now becoming fully apparent to landlords in the private rental sector.

A large number of accountants and mortgage advisors are reaching out to their customers to explain exactly why they should be paying attention in the wake of these new laws. “Many investors remain unaware of the change, or underestimate its severity,” says Guardian writer Richard Dyson, who describes the tax as “a new benchmark in absurdity in Britain’s already ludicrously complex tax regime.”

The extent to which Osborne’s new taxes will exclude would-be landlords and severely affect existing landlords has resulted in some saying that he has killed buy-to-let for all but the very rich (as it only applies to investors who take out mortgages).

“It will be very difficult for middle-income borrowers to get into buy‑to‑let in future,” says Lisa Riches, a tax partner at Smith & Williamson. “It won’t end overnight, but existing investors will sell and far fewer will buy. Buy‑to‑let may well waste away. The wider worry is that the Government can make such radical changes without any consultation. What other areas will come under attack?”

Essentially, landlords will be taxed not on their profit, but on net turnover, before overheads and mortgage payments. Landlords affected the worst will see the tax they pay on their investment double or more, as well as the tax payable rise above 100 per cent, eliminating profits entirely and leaving them in dire straits indeed.

“My options are to increase rent significantly, which the tenants can’t afford, or evict them and sell up, or convert the property into smaller units,” one landlord tells the Guardian. “The Chancellor doesn’t grasp the misery he’ll cause – or doesn’t care.”

It’s not just property owners that Osborne is screwing over. Councils will soon find themselves stretched even thinner when it comes to finding accommodation for people when they are no longer able to turn to private landlords who have been forced out of the market. And then there are the tenants themselves, facing steep rent hikes or eviction because their landlords can no longer afford to maintain their properties.

Earlier this year it was thought that buy-to-let could function as a sustainable savings model for families and people facing retirement. Thanks to George Osborne, people seeking a nest egg will have to look elsewhere.

George Spencer is CEO at Rentify.

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