It’s all a changed situation for landlords who buy properties intending to rent out. While the real estate industry remains lucrative, new policy initiatives may change the game in this sector. Investing in rental properties has, for many years, been considered a perfect opportunity to make more money. Increased demand for rental housing, which inflated house prices being a bonus to those who have tapped this opportunity. Things may take a tough shift for both renters and lessors once buy to let tax relief is phased in.
What Does This Mean?
If today you decide to invest in rental property, there is a likelihood of you not realizing full implications. So far, individuals purchasing properties for the purpose of renting out have managed to claim tax relief. Remember, the percentage to be demanded depends on the rate of the taxpayer. These seem gloomier to property owners with a longer-term fixed-rate mortgage. Remember, profits will be low if the interest to be disbursed is more unless the landlord operates a savings account.
How Will This Affect the Lessor’s Tax Relief?
Ideally, the tax relief has been on a 20 percent flat rate. This is no longer the case. Property holders tax relief pay rate now depends on their incomes. From now on, property owners earning more revenue will lose more on mortgage interest payments as opposed to their counterparts with low income. These new developments have been implemented gradually to avoid inflating the landlord’s taxable income.
Coping Mechanisms for Landlords
Lessor will have to strategize on how to deal with losses that may arise from these changes. The question is, will increasing rental fees be a viable solution considering that most tenants already feel burdened by what they are paying? Individual landlords should be analytical when making this decision as they can easily price themselves out of the market. Few solutions can prove rewarding to property owners who are likely to register losses following this change. Such as
Shifting to a short-term fixed-rate mortgage deal
Hold your property in a limited company, meaning no need to buy to let tax. Thus you will submit corporate tax which is usually lower.
Property transfer, but only if the other party’s tax rates are lower.
Conclusion
If you earn a higher income, be ready to feel this change pitch, but if your income is low, there is no need to fret. This initiative may help control this industry since many landlords will consider using their superannuation on other avenues other than a rental property. With decreased competition in rental property investment, homes will become more affordable.
