More and more buy-to-let landlords are feeling the pain from previous tax changes such as increased SDLT (Stamp Duty Land Tax) charges on property purchases and restrictions on mortgage interest relief, which means that landlords paying tax at the 40% rate or above will often still have tax to pay when only breaking even after covering mortgage and other costs. With this in mind, many will be considering whether the sector even remains viable.
Against a backdrop of insufficient rental properties in the market and rising rents, the Chancellor could decide to use the Budget to ease some of the pain for buy-to-let landlords.
Tom Roseff, Tax Partner at BHP, said: “Individual landlords would undoubtedly welcome the removal of the restriction on full interest relief for mortgage costs. But whether the Chancellor would be willing to spark what could well be a resurgence of the buy-to-let boom of previous years remains to be seen, not least given the impact that this could have on the availability of properties for first-time buyers.”
Income Tax
In practice, it seems more likely that we may see changes to the income tax thresholds, which would likely benefit a far larger proportion of the population, both easing the pressures arising from the cost-of-living crisis and playing well in terms of a pre-election give away to struggling voters.
Inheritance Tax
What may, however, be significantly more interesting for many landlords is speculation that we may see Inheritance Tax (‘IHT’) either revised or potentially abolished. As buy-to-let and investment properties do not benefit from specific reliefs, the potential IHT exposure on death is a significant concern to many.
An increase in the current IHT nil rate bands, a reduction in the headline rate of IHT or even the outright abolition of what is regarded by many as an ‘unfair’ tax would all no doubt be welcomed by landlords. Given IHT raised around £6bn in the first nine months of the current fiscal year, its abolition would also be relatively inexpensive in comparison to other potential tax changes, with a limited impact on the Treasury’s overall tax revenues.
However, Tom Roseff commented: “Given that IHT affects only a relatively small proportion of estates, it seems unlikely that we will see such measures announced in the Budget. I’d predict, instead, that the Chancellor will focus on measures with wider impact, perhaps instead saving any pledge on IHT reform for a pre-election manifesto.”
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