There have been rumbles recently regarding the possibility of buy to let property investors not being able to offset all income received against liabilities.
A firm of accountants commented that Gordon Brown might be forced to restrict the amount of income allowable against tax, in a move to slow the housing market. However, if the market was slowed or interest rates increased, this would mean added problems for landlords.
A typical example of the forecasted measures would be where a buy to let landlord had taken a mortgage out on a property that he or she rented. At the moment, any rental income received can be offset against the cost of the mortgage. For example, a property worth £150,000 with a mortgage of £100,000 would mean interest repayments to the lender of £6,000 a year (£500 per month), if interest rates were 5%. Rental income up to that level can be offset as an expense. However, the plan could be to restrict the amount of rental income that can be offset as an expense, up to a maximum of say 50%. This would mean that if rental income was £500 per month, only £250 could be offset, leaving the other £250 per month as potentially taxable income.
Our View
This news is pure speculation at the moment but if Gordon Brown needs to raise extra revenue to meet his economic forecasts, it is one way of doing it.
There are many implications of these actions taking place and the problems could be widespread. Firstly, it could make rental properties less attractive. Prices could then fall if demand was low and this could bring around negative equity.
Also, for right to buy mortgage lenders, their charge over the property could be worth less if prices fall. This could mean second charges needed.
Free Fact Sheet - Registered Users - Capital Gains Tax on Second Properties
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