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Landlord tax-relief slashed to discourage Britain's buy-to-let frenzy

Last Updated: July 09, 2015

A radical change is ahead for UK landlords.  Tax reliefs favouring UK landlords have led to a steep increase in investment in buy-to-let properties in the UK, and have contributed to inflating property prices and rents, making housing increasingly unaffordable.   Landlords are currently able to claim tax reliefs worth 40% or 45% of interest payments on buy-to-let mortgages. However under new rules, from April 2017, they will be able to claim maximum tax relief of only 20% of the interest payment. The change will be unfolded over the next four years.    The landlords will also not be able to claim 10% of the rent against wear-and-tear costs. From April 2016, landlords will only be able to deduct costs they actually incur.   Britain’s two million buy-to-let landlords will be affected by these tax regulations.    "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," Chancellor George Osborne said recently.   Osborne added that how popular buy-to-let mortgages have become in Britain can be gauged from the fact that they now accounted for more than 15% of new mortgages, causing the Bank of England to sound warnings 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 said.   The government also announced a major tax relief to home owners who let a room in their own home to a lodger. Homeowners will be able to make tax-free income in rent up to £7,500 (US$11,548) from lodgers. Earlier, the tax-free limit was £4,250 (US$6,544). The change comes into effect from April next year.   Advocates of affordable housing welcomed the announcement. They said that buy-to-let landlords were being given unfair advantage over regular home buyers. They hoped that the government would take more such measures to give home-buyers a level playing field. 

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