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About 440,000 landlords who currently pay the basic rate of income tax could find themselves paying at the higher rate when tax changes are introduced on buy-to-lets next year. The National Landlord Association has released figures that reveal just how many landlords will be affected by the changes. At present, landlords receive tax relief on mortgage interest, but this is being gradually phased out. By 2020, mortgage interest will not be deductible from rental income when calculating a tax bill. Instead, there will be a 20 per cent basic rate reduction from income tax liability for finance costs.

The NLA figures estimate that this means about 440,000 landlords will move into the higher tax bracket from 2017, when the changes come into play. The tax liability will increase depending on the amount of interest on mortgage payments and the size of the buy-to-let portfolio. For someone with a single property, it could be £3,600, but a portfolio of 20 or more could see a rise of about £38,000, according to the NLA.

Richard Lambert, the NLA’s chief executive, said the government had claimed only a small number of those paying the higher rate would be hit by the changes. He urged the government to look again to reduce the impact on landlords and, therefore, tenants. He said that the new rules could be brought in to just apply to loans taken out after April 2017. Otherwise, landlords may have to raise rents to offset the tax rise or sell, which would mean tenants have to look for a new rental property.

On a more positive note, Ireland has decided to reverse its policy of preventing landlords from claiming full mortgage interest tax relief on buy-to-lets. When the policy was first introduced in 1998, rents rose by 50 per cent over three years. Irish finance minister, Michael Noonan, announced in his Budget statement that landlords can claim 80 per cent tax relief from next year. This will rise by five per cent each year until it reaches 100 per cent once again.

Landlords are urging the UK to follow the Irish example, as otherwise it could lead to rent rises and fewer properties to let. The Axe the Tenant Tax campaign is lobbying the government to make a U-turn, while the Association of Residential Letting Agents managing director, David Cox, believes that Ireland’s decision shows the policy does not work.