Buy-To-Let Exodus Spurred By Increasing Tax Burden, Analysis Reveals

The UK residential market has lost 116,000 buy-to-let properties in the last year, with the number of rental homes dropping from 4,579,000 to 4,463,000.

In addition, 70,000 BTL landlords have exited the market in the last year, with the number dropping from 2.82 million in 2020 to 2.75 million in 2021.

The figures come from analysis of HMRC data by chartered accountant UHY Hacker Young, which believes the large number of BTL landlords exiting the market is partly due to the “substantial” increases in tax levied on the sector.

Landlords could previously deduct finance costs, like mortgage interest, from their earnings to reduce their income tax. However, this rule changed in 2017, with the amount landlords could deduct from their rental income gradually decreasing until it reached 0% in 2020. With all rental income now having to be declared, landlords can find themselves pushed into a higher tax bracket, and those with small profit margins might even end up losing money after paying tax, warned UHY Hacker Young.

The government also reduced the ‘wear and tear’ expenses landlords can deduct from their rental income; whereas landlords could previously claim a deduction worth 10% of their rental income each year, from 2016 they have only been able to claim for the actual cost of replacing furnishings.

Landlords also saw a cut to private residence relief in 2020, which increased the amount of capital gains tax they must pay when selling a rental property that used to be their main home. BTL purchases also incur a 3% stamp duty surcharge – another contributor to the decrease in rental properties by reducing the number of new landlords entering the market, according to UHY Hacker Young.

“We have seen an increasing number of landlords selling off or reducing their portfolios over the past year,” a spokesperson for the accountancy said. “Less favourable tax treatment has encouraged this exit from the sector, as well as dissuading newcomers from entering the market.

“Reducing the number of properties for rent by driving landlords out of the market doesn’t benefit tenants as it adds to the upward momentum on rents. The decrease in available properties has led to increased competition amongst renters.”

However, the spokesperson added that landlords who have managed to stay in the market have benefited from rising rents as a result of this excess of demand over supply.