Buy-to-let landlords in Scotland will face higher tax bills than their English counterparts from today, according to leading accountants and business advisors French Duncan LLP.
This is due to the reduction of tax benefits introduced by George Osbornes’ 2015 Budget which is aimed to discourage buy-to-let investment in order to help “level the playing field” between homeowners and property investors. The issue is that Scottish landlords are hit harder due to the higher rates of tax in Scotland.
Despite these changes, and a few others which have been introduced since, many landlords are unaware just how significant these changes are and the impact they are having on their tax liabilities and the viability of many BTL investments.
Stephen Oates, tax director with French Duncan, explained: “From April three quarters of any interest paid on buy-to-let borrowing will be eligible for a 20% tax credit with the balance of interest deductible from rental income.
“While this sounds complicated the effect is alarming on the profitability of BTL investment and Scottish landlords face a 15% greater reduction in net income by next year than their counterparts in England and Wales.”
Oates fears that many of those who have invested in buy-to-let are “now faced with an array of financial and regulatory changes”, which could turn what “was once a lucrative hobby into an administrative nightmare which may end up costing them money”.
A higher rate taxpayer in Scotland with a rental income of £12,000 and interest on a BTL mortgage of £8,000 will find their net income down to £1,100 (£100 less than south of the Border) for the 2019/20 tax year, less than half the level it was in 2016/17.
From the 2020/21 tax year it will be down again to just £680 which is 15% lower than a landlord in England and is 28.8% less than the net income four years earlier.
“The whole process of being a landlord has become more complex, costlier, and less attractive for all but professionals and large-scale investors,” he added.