Summer Budget: Landlords are buy to let losers but rent a room winners

Summer Budget: Landlords are buy to let losers but...

Jo Bateson, private client tax partner at KPMG in the UK, comments on the changes to the taxes paid by Landlords announcement.


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Commenting on the changes to the taxes paid by Landlords announced in today’s budget, Jo Bateson, private client tax partner at KPMG in the UK, said:

“Landlords are buy to let losers but rent a room winners as a result of today’s Summer Budget.   

“On rent a room, the annual tax free allowance has been raised to £7,500 a year meaning that a householder could let out a room for £144 a week before becoming liable to any tax on the income. This is a whopping 76 percent increase on the old allowance of £4,250. With the growth of the ‘sharing economy’ and a rising number of people seeking Monday to Friday rentals in city centres, this could prove a very valuable break for householders on a tight budget lucky enough to have a spare room. 

“On buy to let, landlords will face a restriction in their ability to offset mortgage interest (which will be capped at the basic rate of income tax, phased in over 4 years, starting from April 2017) and, from next April, the annual ‘wear and tear’ allowance will be replaced with a new system under which they can only deduct costs they actually incur. For a higher rate landlord with rental profits of £15,000 and mortgage interest of £3,000, these changes will cost £1,200 when fully in force in 2020 which increases the effective tax rate from 24% to 32%. 

“It will be interesting to see whether buy to let landlords decide to keep their property portfolios or sell up ahead of the changes. They have some time to think about it since they won’t take effect until next April for wear and tear and the following year for the restriction on mortgage interest. 

"If reasonably large numbers of landlords decide to sell up and significant amounts of second hand stock becomes available as a consequence, this could have an impact on the housing market and could cause problems for some developers reliant on investors to maintain the rate of sale. There is also some risk of rental rates rising as a result of fewer properties available creating a market squeeze and landlords seeking to compensate for increased costs. In order to avoid this, it would be helpful to see a longer-term commitment to accelerate the build of private rented sector stock, coupled with a more regulated market.”


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PMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff.  The UK firm recorded a turnover of £1.9 billion in the year ended September 2014. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 162,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  Each KPMG firm is a legally distinct and separate entity and describes itself as such.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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