13 July 2015, Homeowners who become unintentional landlords through temporary career moves could become the accidental victims of George Osborne’s Budget clampdown on buy-to-let investors.
The Chancellor, keen to address what some see as the wrongful gains made by investors in residential property, is clamping down from 2017 by gradually removing the right to claim more than the basic rate tax equivalent in relief for mortgage interest and also, from next year, tightening the rules about write-down for wear and tear for furnished properties by allowing claims only for money spent rather than the annual 10 per cent of rental that’s currently allowed. Holiday lets and corporate landlords are exempt from this.
But Zaza Oswald, partner in charge of lettings for Carter Jonas in Hampshire, says the changes could hit some landlords with an unexpected, and unjustified, penalty.
“Many properties are owned by people who let them when their careers demand they move elsewhere for a time,” explains Zaza. “Carter Jonas has a good number of such homes on its books across the UK – appealing properties that readily find good tenants.
“They are let by people who want to return but won’t sell up and move because house price inflation bars them from selling now and buying again later. So they let their home to cover the mortgage and then rent in another location while they are temporarily displaced.
“Among these people are civil servants, who will also face a 1% cap on earnings growth, moving away from major centres to advance their careers and who ultimately will want to return home. They now face a shortfall in their ability to pay the mortgage without raising their rents to cover the difference. It will mean they have to rise by more than the shortfall to cover extra Income Tax payments.
“The loss of a write-down on furnishings and maintenance unless they can provide invoices means that these people will have to suffer wear and tear on appliances and fittings that don’t necessarily break during the tenancy but from which they get a shorter useful life because the tenants have been using them.
“We still have to see the fine print and there’s the promise of consultation this summer, so there’s time for Mr Osborne to clear this anomaly so that only those letting more than one residential property are subject to the changes. It may have seemed a good idea during his Commons performance but it hasn’t been thought through sufficiently to become policy.”