Online letting agent Upad.co.uk has revealed landlords will experience an average 13 per cent increase in their taxable profit from 2017 to 2018 to 2018 to 2019, leading many to pass on the extra financial burden to tenants.
Changes due to be phased in from 6 April mean landlords must now pay tax on turnover, rather than the difference between rental income and mortgage interest.
By 2020, 100 per cent of buy-to-let finance costs will be restricted to the basic tax rate of only 20 per cent.
A spokesman for Upad said some landlords may find themselves being tipped into the higher tax bracket even if their income does not increase, leaving many renting at a loss and subsidising their property every month.
But the letting agent pointed out that there are other options for landlords to consider besides rent increases, including setting up a company to buy property, or transferring an existing property to a limited company or a lower-rate tax payer if it is jointly owned.
James Davis, chief executive and founder of Upad.co.uk, said: “Landlords should also look at ways to negotiate with their letting agent and be vigilant to agents trying to increase their commission or other fees, as they look to flesh out their profits following the ban on tenancy fees.
“Landlords can minimise the impact of the tax changes through saving money spent on advertising and tenancy set-up by using an online letting agent like ourselves.”
Rebecca Robertson, director and financial planner at Chatham-based Evolution for Women, said she thought raising rents could cause too much competition in the market and was not necessarily the solution.
“I think more information needs to be provided from the government in terms of how landlords can be more efficient with their tax,” she added.
“Limited companies are a great option because you can hold the money in the business and draw it out when you need it. The business would continue to buy future properties, and if the strategy is long-term growth, that is brilliant.
“The hesitation is on mortgages, which are not in their name but in the business’ name. There are not a huge number of options at the moment, but there are some who will even do start-up companies.
“The more demand there is, the more lenders will get on board. I can see it becoming a big growth market.”