New ‘Tenant Tax’ Creating Financial Headaches for Landlords

George Osborne wanted to create a more level playing field in the buy-to-let market. Instead, the former Chancellor of the Exchequer and newly minted newspaper editor has generated consternation amongst private landlords.

Some landlords in the residential sector are now thinking about scaling back their property portfolios, while others are mulling over a change to commercial property — and others are of a mind to throw in the whole landlord thing altogether. What’s got them all so worked up? More tax and potentially fewer profits is the answer.

Tenant Tax

Mr Osborne’s Section 24 changes to the Finance Act came into effect on April 6 and directly affected the rental incomes of landlords and landlord agents operating in the residential sector (the legislation does not apply to companies renting commercial space, which is why some private landlords are considering the switch). From now until April 2020, the amount that private landlords can claim in tax relief for finance costs such as mortgages and loans will gradually decline, from 75% this year to 50%, 25% and then 0% in the coming years.


Unsurprisingly, this has created widespread alarm among private landlords, but according to one survey, well over a million of them are not aware of how they are now financially impacted by the newly enacted legislation. The poll showed that 1.4 million landlords did not know about the impending tax changes and their implications and that, altogether, some 8.2 million people in England could be affected.

So who, exactly, will be bearing the brunt of the new tax code? Those it will directly affect are people living in Britain who let residences long term, as well as renting out residential properties overseas. People who are not living in the UK but who are letting flats or houses will also come under the new law, as well as those involved in partnership arrangements and trustees and beneficiaries of trusts involved in property. Holiday flats and homes that are fully furnished are not subject to the changes.


Amid the potential for declining finances among landlords, some are thinking about getting out of the business entirely. A recent survey revealed that, such is the fear of far lower incomes, up to half of landlords are actively considering getting of the rental game — and that profit margins are razor-sharp, with the average landlord making just £343 in monthly profit on rentals.

It’s no surprise, then, that landlords who are remaining in the business are doing their utmost to drive down all their many profit-sapping expenses. For a growing number, that means handing the task of operating a property over to a letting agent, potentially standing to make substantial savings. Go looking for a landlord agent in London W6, for instance, and you may find that it is highly beneficial to use their services to do everything from finding quality tenants to collecting rent, dealing with arrears and even carrying out cost-effective repairs and maintenance.


In fact, leading letting agents such as Horton and Garton in London report an increase in landlords using their services in recent years. Many say that their services have become important in terms of remaining profitable. They say some are surprised that after years of hardship and large expense in running their properties, they are doing less work and making real savings due to using a landlord agent.

Is the new tenant tax here to stay? Not if campaign group Axe the Tenant Tax, set up by two landlords aghast at the change, have anything to do with it. They maintain it is grossly unfair because “every other business in the land is allowed to offset their total costs against their incoming before being taxed (on their profit).”

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