According to the National Landlord Association (NLA), 440,000 basic-rate taxpayers – or 22% of the UK’s 2 million landlords – will be forced to pay 40% tax on their income rather than 20% when the rules are implemented.
The changes, once fully phased in by 2021, mean landlords will no longer be able to deduct mortgage interest payments or any other finance-related costs from their turnover before declaring their taxable income.
Currently, mortgage interest payments are one of a number of expenses landlords can deduct as a business cost, including insurance premiums, letting agent fees, and maintenance and property repair costs.
The NLA said the amount by which landlords will be affected depends on their personal circumstances, including whether or not they generate income from other sources.
Landlords in London, the east of England and the West Midlands are expected to be hit hardest. Those without a mortgage will not be affected.
Last week, a group of private landlords – led by Cherie Blair QC – lost a High Court battle to overturn the so-called Tenant Tax.
Richard Lambert, chief executive officer at the NLA, said: “When the government announced these changes last year, it claimed they would only hit a small proportion of higher-rate tax payers. We now know that is complete tosh.
“The government must look to amend these tax changes and minimise the impact on landlords and their tenants – something that could easily be achieved by applying the rules to only new loans written after April 2017.
“Unless this happens, landlords will face an impossible decision of whether to increase rents and cause misery for their tenants, or to sell-up, and force their tenants to find a new home”.
This is just one of a range of tougher tax measures aimed at landlords. In April 2016, a new 3% Stamp Duty surcharge was introduced for anyone buying a second property.