The ICAEW attacks the Chancellor’s Plans to Change Buy-to-Let Tax

The leading professional accounting body in Britain, the Institute of Chartered Accountants in England and Wales, (ICAEW) has criticised the changes that George Osborne has proposed for buy-to-let tax. The Institute condemns the legislation as an “unthought-through” and expects it will be troublesome for many; forcing some landlords out of business and changing the property unnecessarily.

The new tax changes will be phased in between 2017 and 2020, and will remove the ability of private landlords to offset the cost of their mortgage interest before arriving at a taxable profit. George Osborne intends to “create a more level playing field” between property investors and owner-occupiers who current do not enjoy tax relief on interest payments.

The ICAEW has indicated that the new tax would affect small property investors only; large companies investing in residential property will not be affected and will be able to continue claiming tax relief. The ICAEW added that the measure will affect both new and existing buy-to-let investments. The institute expressed concern that taxpayers will have calculated pricings and borrowed accordingly, and the borrowing is likely to be a long-term arrangement. This new system could mean many of unable to restructure their debt.

Landlords face being taxed on zero income or losses. Some landlords could be pushed from the basic-tax rate bracket into the higher rate, even though their real incomes have not increased. The ICAEW highlights that tax credits could be lost with no real economic change in come. This could also mean the loss of tax relief on pension contributions or the loss of the new 0% savings income band, which comes into effect next year.

A shortage of property is already a crisis, but some predict that this change could make the process of finding a home a lot more difficult for first-time buyers. The interest relief restriction will favour cash buyers who want to buy to let and this may increase the competition at the lower end of the property market. This will only increase prices and hinder many already struggling first-time buyers.

There are also likely to be practical difficulties. Landlords will now have to complete self-assessment forms; the gradual implementation is likely to cause problems and will require extensive record-keeping.

The Institute’s Anita Monteith said that “it’s very confusing legislation… there needs to be a holistic review of property taxation, looking at how property is taxes from capital and income point of view.” She criticised the Chancellor’s approach calling it fragmented.