When calculating rents I have to work out my overall profit (yield). My net yield (how much I’m left with) has to consider all sorts of costs, including income tax. I am in the higher tax bracket, so I pay 40% of my tenants’ net rental income to the tax man. It’s a bit more complicated than this but, basically, your rent is taxed. If it were not, I would be able to charge less. In fact, the recent changes to how mortgage interest is calculated increased landlords’ tax burden and, consequently, increased how much of your rent is paid by me in tax.
By comparison (though not direct), landlords get in the order or 5-7% profit on their investment. So, if you think rents are exorbitant, rather than blame the greedy landlord, ask your MP to make rental income tax free for landlords, as the government are getting a healthy chunk of your rent.
What! Same could apply to anything. Vast majority of things would be much cheaper with no tax but you may find an issue if you need medical help etc…I’m sure tenants will be overjoyed at paying tax on their income so you can live tax free…
Couple of points; rent should be tax free, yet by increasing landlords’ tax (as they did when the Government banned us offsetting our mortgage interest), inevitably it was passed on to tenants; but also, tenants (and tenant advocacy groups, such as shelter) constantly berate landlords for being greedy, yet the tax man is taking a fair old chunk of their rent payments (albeit indirectly) and I don’t think tenants are necessarily aware. I’m sure Tenants would be livid if the Government turned around and said we are going to cut out the middle man and tax rent at source.
Rents are set by market rates. I think the idea of substantial falls in rent if they were made tax free would be subject to a large amount of scepticism.
With mortgage interest rates so low it only substantially impacts the overstretched. Rent index shows that since 2015 rents have increased by 10% across UK, so basically normal inflation, so it doesn’t look like much has been passed on, I certainly haven’t passed any on.
I have 2 tenants in 2 properties who have been with me for 22 years, each the rent has gone up very little. but no voids , paid on time ,they dont ask for much,. Their rents have more than paid for the properties, no hassle of looking for new people Love it.
Not if it was a rebate to the tenant. Anyway, the mechanics of how it might work aside, I think my point has been missed. I’m not advocating tax free rent, per se, but merely pointing out that, instead of looking to the landlord for all the woes of tenants, there are others with their hand firmly in the cookie jar, including the tax man (or woman, I hasten to add), who is receiving one way or another a substantial chunk of their rent money and if there is to be a solution to high rents, then perhaps look elsewhere and give us a break.
You did say rent should be tax free! I do take your point on passing on costs, however the way I look at it is on a 100k mortgage at 2% the tax change costs me £400 a year in tax. However as 5 years ago I was paying 3.2% and am now paying 2%, this saves me £1200 a year so after allowing for rule changes I am actually £800 a year better off. Rather than looking to pass on the costs from tax I have passed on the overall savings via no increases in rent for 5 years so I have happy tenants who stay and look after the properties which then provides further savings for me through reduced void periods, reduced work for me and reduced maintenance costs.
In my situation I can’t offset 100% my mortgage so mine and my wife’s tax has increase by over 4K a year. On top of that my wife’s income has been pushed above the 50K threshold (because income is no longer net of mortgage repayments), As a result, we have to repay a whole chunk of our child benefit back, so add another £650 to the £4k. I am currently relatting 2 flats. I generally let my flats below market rates, but on this occasion I have had to rethink my approach because of my additional tax burden. As a result, one of the flats I previously let for £650, is now up for £725 and the other has gone up by £45. I will also bring my other flats in-line with full market rent over the next 12-18 months. That’s my situation, but there will be many other landlords squeezing the pips out of their rentals where they can due, in part, to tax increases. And there is some solid evidence to back this up, including an RLA report with the summary conclusion that says:
The current study found that a majority of landlords (70%) reported that the changes
to mortgage interest relief would reduce their profitability as a business, with 62% of
landlords reporting this would reduce their profitability by at least 20%. To mitigate
the negative impact of these changes, the majority of landlords (67%) reported they
would increase the rents.
I appreciate it reduces profitability, I’m impacted similarly with regards to child benefit. Do you need the rent to live on as you could pay rent into a pension as you would get the 40% tax back plus the child benefit back.
Properties are for income and my pension. Could pop my excess cash in to one I suppose, but the risk of the the rules changing and release age being pushed out beyond the current level means I wouldn’t bother. Pension changes, along with changes to how landlords are treated (tax-wise and other legislation) are just a couple of examples where it is so difficult to make long-term plans these days. The goalposts change like the wind. Of course, the next significant tranche of landlord bashing to come our way will be when Labour get in. What I’m moaning about now will be a walk in the park compared to what the likes of Angela Rayner, John McDonnell and Momentum have planned for us landlords. Before you know it, we’ll be selling our properties at a discount to our tenants.
Mortgage rates might be low for owner occupiers, but for btl landlords they are around 3-4%, plus having to remortgage every two years because otherwise you revert to the normal bank rate which is 5%. On top of which you have massive arrangement fees every time.
They might have used to be 3-4%. They’re not anymore. I’m paying 2% for btl on a 5 year fix (with no fee). The best current rate for 2 year fix is 1.19%. A fee would increase this but it is true to say that reductions in mortgage rates more than offset the tax changes. These are based on 60% ltv.
Depends on your situation regards to pension. A lot will be a landlord alongside a “proper job” so can pay in part of their salary and live off rent. End result is the same. Even if no job a couple could pay £7200 into a pension, provided under 75.
Rent isn’t taxed, income is taxed. Someone earning £60k vs someone earning £50k+10k rent should pay similar taxes.
Can the government change the pension rules on company pensions? My company pension says I can take it at 55, so I’m currently avoiding the 40% tax bracket by adding more into that pension. Also I asked for more holidays to reduce my salary.
Child benefit is unfair on a couple earning £50k and £10k vs a £50k each couple. There must be some couples who avoid getting married and some that divorce because of these rules.
You call it income, only because of the point of taxation. But, however you slice it, a portion of the rent paid ends up in HMRC coffers, more so with the new tax changes where 67% of landlords in one survey say they intend to pass on the tax rises to tenants.