This past Wednesday, Chancellor George Osborne gave his second budget speech of 2015 that included remarks to slash mortgage interest aid and relief to the basic income tax rate. While he said that the aid will not be removed all at once, it will however be removed gradually over a four-year period starting in April of 2017.
During his speech, Osborne stated that “… Landlords have a huge advantage in the market as they can offset their mortgage interest payments.” This was in comparison with homebuyers who are not allowed to write-off interest paid on mortgages against their income. In an extreme example, for every pound spent on mortgage interest nearly 45 pence is received back.
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What Does this Mean for Buy to Let Mortgages?
If you are considering buying property for the purpose of buy to let, now may be the best time to purchase due to decreased tax cost, even though taxes are expected to return to normal in spring of 2017. With these deferred tax savings you may be able to increase your bottom line, spend extra cash on improvements or even put some away in case of an emergency.
However, with that being said, the government also has plans to reform how landlords and property owners are allowed to write off the costs and fees they come across while maintaining their property. As of April 2016, landlords will only be able to deduct actual costs they have incurred from their property, whereas now the allowance calls for a deduction of 10% of total rent collected.
Will There Be Any New Tax Breaks?
There were many other points during Osborne’s speech, but a keynote was the plan to raise the tax relief rate from 4,250 to 7,500 for those who rent out a room or area on their property. This is a huge relief for individuals who may be renting out just one or two bedrooms in their home compared to those who own entire buildings for renting purposes.
With careful planning these new tax hikes and breaks can help investors strengthen their buy to let mortgage portfolios over time. Even though it may seem like a great time to purchase property with plans to rent, it is important to thoroughly research the area in question to assure the rent received will pay the mortgage now as well as in the future when tax relief may end, such as in 2017.