Will George Osborne abolish tax relief for landlords in tomorrow’s emergency Budget?

Landlords have received some bad press in recent years, not least for apparently squeezing first-time buyers out of the market.

The suggestion is that so-called ‘nasty’ landlords have snapped up properties that allegedly would have otherwise gone to those taking their first step on the property ladder.

In reality, some of these properties were unlikely to have been bought by first-time buyers due to the pressures of struggling to find an increasingly large deposit – hence the need for Government schemes introduced in recent years, such as Help to Buy, which assist those with just a 5 per cent deposit.

It is perhaps this emerging negativity towards landlords that has led to buy-to-let investors becoming an easy target in the emergency Budget tomorrow.

Speculation is rife that the Chancellor George Osborne will scrap the tax relief on landlords’ mortgage interest payments. He is set to outline £12bn of spending cuts and landlord tax breaks could be hit as a means of saving the Treasury some cash.

The tax relief comes in the form of landlords being able to deduct mortgage interest from their profits. They can also offset other costs such as letting agent fees, home insurance, maintenance and repairs, council tax and any ground rent. It is one of the main reasons why buy-to-let is such an attractive type of investment.

Many landlords do not realize how many of their expenses are tax deductible, but an expanded list is available by visiting the Rentify website here.

This guide on the Rentify website goes on to explain that even if these expenses were incurred before the property is let, they can still be deducted from the first year rent. And it is possible to backdate some claims, meaning if you have not claimed for repair costs incurred in the past, it is possible to amend your tax return one year after the deadline for submitting it.

Mortgage interest often makes up a large proportion of the deductible costs and allows landlords to reduce their tax bill significantly. It is a generous tax break that costs the Chancellor as much as £5bn a year, according to the Intergenerational Foundation lobby group.

The group argues the policy is unfair on younger people who are already paying high rents.

However, investing in buy-to-let begins to look unattractive once the relief is withdrawn – and could result in landlords fighting back by increasing rents even further in a bid to recoup their losses. As such, there are clear arguments for ensuring the Chancellor doesn’t go ahead with any changes – from a wider market perspective as well as from a landlord’s position.

Wealthy buy-to-let investors who do not need a mortgage to develop their portfolios would be unaffected.

If the Chancellor decides to go ahead with scrapping the tax relief, landlords will undoubtedly feel as though they are having the rug pulled beneath their feet.  What is needed is for landlords to be able to invest in and build their business without the Government changing the tax rules along the way.