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| Osborne cuts buy-to-let tax break for landlords | |
| (about 1 hour later) | |
| Buy-to-let landlords face cuts in the amount of tax relief they can claim on mortgage interest payments, in a move the chancellor said would level the playing field for homebuyers and investors. | Buy-to-let landlords face cuts in the amount of tax relief they can claim on mortgage interest payments, in a move the chancellor said would level the playing field for homebuyers and investors. |
| The amount landlords can claim as relief will be set at the basic rate of tax, currently 20%, with the change introduced over a four-year period from April 2017. | |
| Related: Budget 2015 live: Osborne announces new national 'living wage' of £9 an hour | Related: Budget 2015 live: Osborne announces new national 'living wage' of £9 an hour |
| Currently, investors can claim tax relief on their monthly interest repayments at the top level of tax they pay, meaning some are benefiting from relief of up to 45%. The relief is estimated to cost £6.3bn a year, and critics have said it gives landlords an advantage over first-time buyers. | |
| In his budget speech on Wednesday, George Osborne said: “Buy-to-let landlords have a huge advantage in the market as they can offset their mortgage interest payments against their income, whereas homebuyers cannot. And the better off the landlord, the more tax relief they get.” | |
| He said this had contributed to the rapid growth in buy-to-let properties, which accounted for more than 15% of mortgages taken out this year, and had caused the Bank of England to sound a warning about the market. | |
| “So we will act – but we will act in a proportionate and gradual way, because I know that many hardworking people who’ve saved and invested in property depend on the rental income they get,” he added. | |
| The budget document revealed that a second raid on landlords’ tax breaks is planned from April 2016, when the current system that allows those to claim 10% of their rent for wear and tear will be scrapped. From that date, landlords will only be able to deduct costs they actually incur. | |
| The gradual removal of tax relief is expected to bring the Treasury £225m in 2018/19, rising to £665m in 2020/21, while the removal of the 10% wear-and-tear allowance is forecast to make £205m in 2017/18, falling to around £165m in subsequent years. | |
| Duncan Stott, director of affordable house price campaign PricedOut, welcomed the announcement. “For too long, buy-to-let landlords have been using an unfair tax break to outcompete first-time buyers and drive house prices further out of reach,” he said. | Duncan Stott, director of affordable house price campaign PricedOut, welcomed the announcement. “For too long, buy-to-let landlords have been using an unfair tax break to outcompete first-time buyers and drive house prices further out of reach,” he said. |
| “For the Conservatives to be pro-homeownership it means they must take action against buy-to-let. We hope this excellent move to bring fairness to mortgage taxation will be just the beginning of the reforms needed to get the housing market into a fit shape for first-time buyers.” | “For the Conservatives to be pro-homeownership it means they must take action against buy-to-let. We hope this excellent move to bring fairness to mortgage taxation will be just the beginning of the reforms needed to get the housing market into a fit shape for first-time buyers.” |
| Adrian Anderson, director of Mayfair-based mortgage broker Anderson Harris, said the changes were not as bad as landlords had feared. | |
| “It is only fair that there is a more level playing field between first-time buyers and landlords, but if this tax break had been completely withdrawn, buy-to-let would have been far less attractive to investors,” he said. | |
| “Thousands of landlords may well have struggled to keep up repayments on their mortgage or struggle to pay the tax, especially when interest rates rise.” | |
| Related: Budget 2015: 25 key points at a glance | |
| The Council of Mortgage Lenders said the decision to phase in the new rules was important. | |
| Its director general, Paul Smee, said: “We will need to understand whether this will have a behavioural impact on higher-rate buy-to-let landlords, but a four-year timetable does at least reduce the risk of sudden market shocks.” | |
| Osborne also announced an increase in the amount of money homeowners can earn in rent from lodgers before they face a tax bill. The maximum amount covered by the rent-a-room scheme has been set at £4,250 for the past 18 years, but will rise to £7,500 from April 2016. | Osborne also announced an increase in the amount of money homeowners can earn in rent from lodgers before they face a tax bill. The maximum amount covered by the rent-a-room scheme has been set at £4,250 for the past 18 years, but will rise to £7,500 from April 2016. |