Buy-to-let landlords can deduct their costs (including mortgage interest) from their profits before they pay tax, giving them an advantage over other homeowners. Wealthier landlords receive tax relief at 40% and 45%.
The government has announced that it will restrict the relief on finance costs that landlords of residential property can get to the basic rate of income tax. This means that individual landlords will not be treated differently based on the rate of income tax that they pay.
The restriction will be phased in over four years, starting from April 2017.
This will hit the private rented sector and we may see a large number of landlords trying to sell their properties. This will reduce the amount of rental properties available, increasing rent.
Alternatively, landlords who retain their proerties may look to increase rent to off-set the additional tax now faced. Landlords must ensure that this process is properly undertaken in order for the new rent to apply.
Buy-to-let landlords face cuts in the amount of tax relief they can claim on mortgage interest payments, the government has said. The amount that landlords will be able to claim will be set at the basic rate of tax, which is currently 20%. The move is aimed at creating a "level playing field" between homeowners and investors, chancellor George Osborne said.