Landlords BEWARE: the ‘Tenant Tax’ could ruin you!

The ‘Tenant Tax’ (official name, Section 24) will leave 28% of landlords having to subsidise their rental properties. So, when will this crippling new tax hit? It’s actually already here. Even though few people – even landlords – seem to know much about it, Section 24 came into effect in April 2017. Currently, landlords can offset mortgage interest against their rental income before calculating their profits and, subsequently, their taxes. By 2021, any landlord with a mortgage will no longer be able to claim mortgage interest as tax deductible.

This change doesn’t have to come as a shock. There is time to prepare, and one of the best ways to do this is by accurately calculating costs in advance. Upad, the UK’s largest online letting agent, has an online Tenant Tax Calculator that works out how much taxable profit a landlord will make on their property after the effects of the Tenant Tax. This is essential as most of those affected will only find out about the extra expense when filing their self-assessment next year.

The average landlord is forecasted to have to pay over £2,000 in extra tax, once this is fully in play. This shocking increase could mean the difference between a new car or family holiday that year – or something even more serious.

In a recent survey by Upad, 44% of landlords admitted they would be raising rents to cover this extra cost. Although this may seem like a handy way to mitigate the extra expense, it may do landlords more harm than good. According to research, 92% of people look for online for their next rental property. They use sites like Rightmove and Zoopla to input area, number of bedrooms and price range. In a city like Sheffield, the average tenant is looking at between £600-£700 pcm for a three-bedroom property – 25 of these come up in the search.

Upad estimates that, with the additional tax, a landlord would have to increase their rent per property by at least an extra £60 a month. This would then make it either the most expensive in the search or even push it into a higher price band where fewer renters are looking. Simply put, their property will be less competitive and have less visibility

estimates that, with the additional tax, a landlord would have to increase their rent per property by at least an extra £60 a month. If they then added this to the rent, either their property would become the most expensive in the search or it push them into a higher price band where fewer renters are looking. Simply put, their property will be less competitive and have less visibility. This tax is coming, and it is unavoidable. There are solutions but landlords need to be aware of the problem they are facing first. A third of the landlords surveyed confessed they had their heads in the sand over this. Don’t get caught out. Take action today by visiting www.upad.co.uk/tax.

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