To be landlord has now become confusing in London with the new tax reforms introduced by the government in the autumn budget. There were speculations of good happening to the citizens involved in this business, but it was never the case. Instead, the new tax policy has put an extra burden on the shoulders of the landlords. It has a brutal effect on the buy to let sector with the investments in London getting hit by approximately 31% since the year 2010. The investors are in search of a new place where they have the privilege of enjoying the tax rebate on buying a second home rather than giving surcharge to the government for the same. Such is the scenario in London with people investing a hefty amount in the Midlands and the North.
Buy to let sector
Whatever be the tax reforms or the new stamp duty charges applicable on the landlords, one must be having an idea about the buy to let sector to understand the new tax policies better. The “but to let” refers to the act of buying a property not for living in but for renting it out. This kind of not very popular yet a prevalent business have its fair share in the economy. Even the financial firms were helping the people by rolling out the scheme of buy to let mortgage loans. The heart of the industrial revolution offers various employment opportunities for the youth and the people looking for work. Even the students from various parts of the world flock here to pursue their studies in the reputed universities. They comprise the major part of the population living as tenants.
Changes in policies
The earlier policies related to the buy to let sector was benign in comparison to the recent reforms which are pretty harsh and are as follows:
- Clampdown on tax rebate on availing the buy to let mortgages
- Wear and tear allowances are removed which earlier was 10%
- Landlords now have to pay an additional 3% stamp duty surcharge when buying a second home
- Payment scheduled was accelerated
There are four major reforms made that made this sector a less attractive place for investment. The removal of tax rebate in purchasing buying to let mortgages means that now the landlords have to mention the basic or the equivalent amount of the second house while filing income tax. This means that they will rise in the income slab and hence have to pay more tax. They now have an added burden of the maintenance of their property along with the increased stamp duty surcharge, making it a costly affair.
More power bestowed to HMRC
- It has access to the third-party protection schemes for the tenants
- Estate agents now have to give the details of the landlord to HMRC
- It can now access the license details of the homes
- It can now hunt down the landlords evading the tax procedures
With several benefits posed by the buy to let sector in London, people were lured into investing in the capital, but with the new and harsh tax reforms, the landlords chose the Midlands and the North as a better place to invest.