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What has the chancellor ever done for buy-to-let?

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Guide to multiple buy-to-let

What has the chancellor ever done for buy-to-let?

In its commitment to help first-time buyers onto the housing ladder, the government also took a swipe at buy-to-let investors.

Following a growing trend to land much of the blame for the lack of affordable housing on the buy-to-let industry - rather than the lack of strategic housebuilding in the UK - the government unveiled measures that would put financial pressure on landlords.

The first thing the chancellor did, in his summer Budget last year, was to make a change to the way in which landlords can claim ‘wear and tear’, by replacing the allowance with a charge on a cost-incurred basis.

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Until 6 April this year, landlords can claim 10 per cent of the net rent as ‘wear and tear’ allowance for furniture and equipment provided with a furnished residential letting. Net rent, according to the government website, is “the rent received, less any costs you pay that a tenant would usually pay, such as council tax”.

But this allowance is being replaced with a relief that will mean landlords of residential dwelling houses can only deduct the costs they incur on replacing furnishings in the property.

Also in the summer Budget, the chancellor announced that buy-to-let landlords are due to receive a lower rate of tax relief on mortgage payments - a flat rate of 20 per cent tax credit - under changes to the taxation of mortgage interest.

Landlords will no longer be able to deduct the cost of their mortgage interest from their rental income, so tax will be applied to the rent received, rather than net rent - that which was left of the rent after the mortgage interest has been paid.

This could leave some landlords receiving no profit at all, as it will be eroded by the tax payments and mortgage interest. As Paul Clampin, chief lending officer for Landbay, explained: “This could transform properties that currently generate positive cash flow into a loss-making investment (on an income basis) because of the extra tax.”

These changes are being gradually phased in between now and 2020.

Then in November 2015, during the Autumn Statement, Mr Osborne announced a 3 per cent stamp duty hike on buy to let properties, with effect from 5 April 2016. Although the stamp duty hike was aimed at higher-earning landlords, so those who pay 40 per cent or 45 per cent income tax will be greatly affected, it will actually push more people into the higher-rate bracket.

John Phillips, group operations director of Spicerhaart and Just Mortgages, pointed out: “Government is considering whether individuals making bulk purchases of 15 properties or more should be excluded from the extra charge, but the ink is not yet dry on the small print.”

So even if your clients think they can be exempt by holding 15 rather than five properties in their portfolio, this may not actually help them.