Debate around buy-to-let tax changes points to general need for extra safeguards for tenants

The new government looks set to press ahead with controversial changes to the tax regime for small landlords that were set in motion last year. Warnings that this will have disastrous consequences for renters appear overblown, given that our research shows a minority of landlords will be affected.

But it is fair to say that some landlords will likely be forced to sell or put rents up, and safeguards should be put in place to protect tenants affected by this reform or other market changes.

The tax changes at a glance

The changes apply to the tax relief that landlords are currently able to claim on mortgage interest payments that they make on their rented properties. Landlords are currently able to deduct the full cost of mortgage interest payments from rental income before paying income tax. But Section 24 of last year’s Finance (No. 2) Act will change this gradually over the period from April next year to 2020.

The changes are fairly complex, but in effect they will mean that

  • For income tax purposes, all rental income will be considered as personal income, without deducting mortgage interest costs first
  • The amount of income tax relief that higher rate tax paying landlords receive on their mortgage will be effectively reduced from 40% to 20%, and for top rate payers from 45% to 20%

Existing landlords with a mortgage who are on the higher or top rate of income tax will see an increase in their tax bill. Landlords who are currently on the basic rate will be affected in one of two ways:

  1. If their gross annual rental income plus other income is below the higher rate income tax band (£45,000 from next year) then their tax liability will remain unchanged. The government estimate this will apply to 82% of landlords
  2. But some landlords who currently pay the lower rate may be pushed up into the higher rate band. This will apply to those whose gross rental income plus other income is above £45,000, not just those whose net rental income (once finance costs have been deducted) are above that level

You can find some worked examples that HMRC have put together illustrating these here.

This could have significant consequences for some landlords. For example, if you are a landlord with a relatively large number of low yield properties, getting in a lot in rental income but also paying out a lot in mortgage costs, then you could face a large tax liability and little to pay it with. Some scenarios could even see landlords pushed into a position where they pay more out in mortgage and tax than they get in income.

The impact on landlord finances in the real world

However, existing research suggests that the majority of landlords are unlikely find the tax changes difficult to pay.

Every two years, Shelter commissions the polling company YouGov to survey both landlords and tenants. They are the biggest surveys of their kind in the country and an absolute goldmine of information for anyone with an interest in private renting policy.

Our last landlord survey, conducted in July last year, found that 45% of landlords have no mortgage at all on their property or properties. These landlords will be entirely unaffected by the mortgage rate relief changes.

A further 24% have mortgages with a combined loan-to-value ratio of less than 50%.

While some of these landlords may have a higher tax bill under the new rules, the effect is likely to be small, because their repayments are likely to be relatively low and rental income relatively high.


This is also backed-up by the numbers of landlords who say they are currently making a profit on their property portfolio. 78% of landlords surveyed said that the rent they collect is currently more than their total property costs – 41% said a lot more.


Furthermore, some of the 20% who are not making more in income than their costs will have capital repayment mortgages or be investing in the property with a view to doing it up and selling for a higher price.

Others will be base rate payers whose rental income is still insufficient to bump them up into the higher rate band and will also be unaffected – or only go into the higher rate a little and affected a little. Research by Natcen on landlord income and wealth in 2013 showed that working landlords’ median gross annual earnings from employment were £28,800. It also showed that 76% of landlords receive less than £900 in rental income a month.

So any claim that a majority of landlords will be forced to increase rents or sell looks overblown.

But – and it’s a big ‘but’ – this still leaves a significant and troubling minority who may be affected in a big way. The concern that some of these landlords will be forced to increase rents or – if they can’t – to sell at least some of their properties appears legitimate.

The need for extra safeguards for tenants

Is this a reason not to implement the tax changes?

We didn’t campaign for them, but we did support their introduction on the basis that they might help to dampen the risk of a bubble building up in buy-to-let and because the money could, if the government choses, be used to undo the damaging freeze on Local Housing Allowance rates. We stand by those principles.

However, we do think that government should be looking closely at any unintended consequences of the policy for the tenants of the minority of landlords with marginal business models.

And for us, this also illustrates a bigger point.

The reduction in mortgage rate relief is not the only change that will affect landlord finances and incentives in the coming years. In fact, an increase in interest rates or – given that the majority of landlords say they are in it for capital gains – a drop in house prices are both likely to have a much broader and deeper impact.

Both are likely to happen at some point. When they do, the growing number of people and families who rely on the private rented sector will need safeguards to help them – at best – stay in their homes or – at worst – find a new one and avoid homelessness. For example, the government could be thinking now about whether there is a role for local authorities or larger landlords to step in and buy rental properties with sitting tenants where a smaller landlord is considering selling their property.

For the moment it appears that the changes to mortgage rate relief will be introduced. The new government now has the opportunity to think about how to protect tenants from the inevitable changes that will affect landlord business plans.

  1. This post is interesting but misses two points.

    Stamp Duty / Land Tax changes mean that it is more costly for a landlord to buy a property than someone buying their own home. Which is part of the reason for the changes. That will have a significant impact on sales by landlords. It incentivizes evicting existing tenants before the sale rather than selling with the tenants in residence. Landlords will negotiate harder to offset the SDLT effect, where another buyer won’t. So it is likely that landlord sales will result in properties no longer being in the rental “pool” at all.

    Which compounds the effect of even a “minority” of landlords selling up. There is so much demand from tenants at present that this is having an inflationary effect on rents already. Less supply will make this worse. So rents will go up as a consequence even where landlords are not directly affected by the s24 changes,

  2. Self-contradictory garbage… Reports of disastrous consequences are described as overblown yet the article states that extra safeguards for tenants are required because of Section 24. Were the consequences not disastrous you wouldn’t be demanding such extra safe-guards in the first place would you Shelter!

    Two thirds of landlords surveyed by the RLA stated that they intend to increase rents as a result of Section 24, not 1 in 5 as indicated by the Treasury. But even if the Treasury prediction were true – that the 1 in 5 wealthiest individual landlords are to be impacted by Section 24 – that would translate into 2 million properties and 4.6 million tenants. The reason for this being that the Treasury’s stated 1 in 5 own more property than the remaining 4/5 put together.

    As with the Treasury, Shelter are assuming that: minority of landlords = minority of tenants, when we’re really talking about a minority of individual landlords with a tenant footprint larger the remaining majority put together!

    As you clearly haven’t been keeping up with the news let me also remind you these tax-driven rent rises and evictions ARE ALREADY HAPPENING. Speak to landlords, tenants and local councils.

    During 1998-2001 Ireland implemented its own version of Section 24 (a less severe version that was not retroactive). The result: Irish average rents rose by 50% in just three years and the scheme had to be scrapped.

    Section 24 makes the disaster of mass rent rises and mass evictions a mathematical inevitability:…/83886/ .

    John Bibby and Shelter: Section 24 = Rent rises and evictions. Support for Section 24 = Support for homelessness. It’s that simple Shelter. On this matter, you are campaigning against the very people you are supposed to be protecting.

    Shelter’s priority regarding Section 24 is clearly not the homeless… it is cobbling together unfounded and irrelevant statistics to justify its previous atrocious decision-making.

  3. Mr Bibby

    What information do you have to justify your opening sentence: “The new government looks set to press ahead with controversial changes to the tax regime for small landlords that were set in motion last year.”?

    The new PM made George Osborne do the last in his series of U-turns by resiling from the policy of eliminating the deficit, just before sacking him. What makes you think that Philip Hammond will not take the earliest opportunity of repealing this lunatic tax?

    HMRC applies what it calls Generally Accepted accounting Practice in calculating the taxable profit of every type of enterprise in the country. One of its principles is deducting interest from receipts when calculating profit.

    As from next April, under s 24, HMRC will stop doing this for just one sector of the economy – landlords who bought property in their own names. They will be taxed on fictitious profit. If they cannot pay, HMRC will bankrupt them. You forgot to mention that.

    Saying you can be put into the higher rate band “a little” is like saying someone is a bit pregnant.

    The second of the HMRC examples that you link to shows how John will be moved from the 20% band into the 40% band. His extra tax is £1,600, which is the full levy of 20% on his finance costs of £8,000.

    The tax on his real rental profit of £8,000 will go up from £1,600 (20%) to £3,200 (40%).

    Last year Megan Shaw, Product Owner – Property Income & REITs at HMRC, sent out an example of someone with a salary of £40,000 and rental profit of £1,200. In 2020/21 the tax will be 170% of this real profit.

    What is the justification for this?

    You link to Martha McKenzie’s article of July 2015 supporting section 24. The comments posted below it point out the stupidity of describing a normal cost as a tax relief, warn of the consequences for homelessness, and point out her anti-landlord bias. The predicted evictions started last year, and are becoming public knowledge now. And s 24 is not even in force yet.

    You end with “For the moment it appears that the changes to mortgage rate relief will be introduced. The new government now has the opportunity to think about how to protect tenants from the inevitable changes that will affect landlord business plans.”

    The obvious way is to repeal s 24, or at least stop it being retroactive. It amounts to the same thing, because no-one who knows about s 24 will buy rental property in his or her own name and thereby volunteer to pay the lunatic tax.

  4. Even if it were only 1 in 5 landlords, it is enough to drive up rents.

    Whilst most landlords won’t be directly affected, do you really think they won’t take the opportunity to increase rents?

    Shelter have really got this one wrong.

  5. Unfortunately you are equating a small number of landlords affected (only a few hundred thousand) with a small number of tenants.

    It is mainly those landlords with a large number of properties that S24 will affect. Add in the fact that many tenancies are for families, and the number of people affected will be in the millions.

    You say that the government needs to consider how to protect tenants.
    Surely the best way to protect tenants is not to introduce a policy that puts so many of them at risk.

  6. Two bed apartment in central Manchester; agent expectations in late ’14 was around £1200 pcm, we achieved £1400, that’s now £1600 with out the car park so add around another £100. During that time cap. values have increased by around 30%. Rent rises? Is’t going to happen, is it?

  7. I have not increased rents in 7 years. So I am angry about the tax. This tax is of no benefit to me or my tenant. I want my tenant to save as much for a deposit, so they can buy their own place.

    Frankly, I am sick and tired of the landlord bashing. There are new laws coming in every few months and plenty of excuses to ‘fine’ landlords.

    All this tax will do is push out good landlords who do pay tax.

  8. Mr Bibby – you miss a key point, that of Pareto Law, otherwise known as the 80/20 rule …. always a useful rule when pushing out statistics and so often forgotten. Of the 2m or so landlords in the UK, the bulk (say 80%) own a single rental property, usually inherited and mortgage-free. Let’s call then accidental landlords – not professional and the property is used as a income/pension supplement. They own about 20% or so of the housing stock

    The rest of the stock is owned by the other 20% of landlords. Professional landlords, who use borrowing to fund their business in the same way as other businesses do (I speak as someone with 35+ years in industry). So when the Treasury spews out misleading statements about “only 1 in 5 landlords being affected”, it’s mainly these professional landlords who will be affected. So let’s not kid ourselves – rents will rise, fewer dilapidated properties will be brought back to life, fewer developments will be built off plan etc etc. Added to that, as a country we have a huge skills shortage so will struggle to build 100k houses p/a despite the noise coming from the politicians (from a Govt sponsored report just this week!). Perfect storm, my friend!

  9. UPDATE – research indicates that that “minority” of landlords affected (just 1 in 5) have about 4.6 million tenants. I repeat, 4.6 million tenants. So even if a small percentage of these landlords raise rents, that’s a huge impact on tenants from Osborne’s mad tax! And this tax is supported by Shelter as well !! Come on guys, help us defeat this tax. Tenants are being screwed already and far worse is to come

  10. I have read the article and am just getting my head around what is proposed. It is lunacy i have to say. my own circumstance is that i have 1 flat which i could not sell which i rent to pay for the BTL mortguage , i maintain the flat and charge the most reasonable rent and pay the tax. the changes will mean if i continue to ask for reasonable rent i will be incurring a monthly loss of around 15% due to being in higher tax bracket. therefore what can a do except increase rent and how will this not affect tennents?i am unsure how saying a fixed cost is all of a sudden not a fixed cost can work for any business model. this will cause an exodus of part time landlords i am sure.

  11. Good landlords are one part of the solution to homelessness not the cause. Shelter needs to work constructively with landlords otherwise it will contribute to homelessness not reduce it. At the moment, there is insufficient affordable social housing. The less competition in the buy to let market, the more rents will rise. Shelter had a 2016 income of over £57 million yet your helpline makes it very clear that you do not provide any housing – just support and advice. Actually what people need is a roof over their head. Shelter is getting too political and I no longer support what you do.

  12. I find your comment on support for the tax change interesting….

    “We didn’t campaign for them, but we did support their introduction on the basis that they might help to dampen the risk of a bubble building up in buy-to-let and because the money could, if the government choses, be used to undo the damaging freeze on Local Housing Allowance rates. We stand by those principles.”

    It’s interesting because when I wrote to Campbell Robb, your CEO, he responded with a completely different view on why Shelter were supporting the tax changes. He told me that as the majority of people wanted to own their own home it was Shelter’s view that they should support the change. So… Shelter has moved from wanting to help people keep a roof over their head to an organisation that wants to have people own their homes, regardless of those that will be evicted to help others to achieve this.

    Isn’t it also interesting that whilst wanting to achieve this strange new goal one of your corporate partners (which you say are more than just a sponsor) is Legal & General who are becoming a major player in the build to rent market. So if I’ve got this right you are supporting Government tax changes on private landlords which will drive many of them out of the market, which in turn helps a corporate landlord who happens to be a sponsor to Shelter. Is that right Mr Bibby, perhaps you could clarify for me???

    Hmmm, if it is then this doesn’t look too good does it Mr Bibby? So what does the Policy and Campaigning Team say in defence of that please?

  13. Shelter does not support landlords and in so doing does not support tenants, for without landlords there would be no tenants.

    Start supporting landlords and work to repeal Section 24 before all the landlords are forced to increase rents beyond anything that a normal tenant can afford. Already I have been forced to increase my rents by 15% as a result of various government policies just to stand still, and this is before Section 24 bites. Gradually all my Housing Benefit tenants are leaving, forced out because they cannot afford the rent.

    Remember no landlords, no tenants.

  14. You really don’t understand the needs of tenants do you? Section 24 is forcing me to displace 12 long term tenants who will not be able to afford to stay in the area they have lived in for the last 6/7/8 years as I will have to seel up. They have enoyed substantially reduced rents and will not be able to afford a similar property as the rent will be higher. They have no means or desire to buy. I am worried sick what will happen to them. For the couple of properties I have left, the rents will be increased substantially to cover my additional tax and I will not permit tenancies over 6 months now as I don’t know how long I’ll be able to afford to keep the properties or what other tax changes might be coming my way

  15. Shelter, you have got this one very badly wrong. Whilst I appreciate you would get blasted from your left wing supporters for anything you were to say that implied any form of alignment with landlords interests, you can support the removal of Section 24 by focusing solely on the Tenants interests. It is a Tenant Tax, levied on landlords, but it will be passed on to tenants. This will happen either directly (rent increases) or indirectly (landlords exiting the market and new ones not coming in to replace them). As other comments have shown, it is not the number of landlords that is of significance, it is the number of tenants housed by those landlords. The biggest landlords provide homes to the most tenants. Please reverse your position before even more tenants are nade homeless. You can find out more here –

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