Despite being a successful landlord of three London houses for the last 20 years, Chidi Egbujie is exiting the market because of recent property tax rises.
He says his properties – one in Tottenham, one in Waltham Cross and one in Chadwell Heath – cost more, in terms of mortgages and upkeep, than he’s making back in post-tax income, and an increase in taxes on landlords at the Budget will worsen the situation.
Every year, the 50-year-old, from North London, said he has had to dip into his own pocket to keep his properties, which “doesn’t make financial sense” to him. He says this will be made worse because of the tax hit, which will add 2 percentage points to the income tax rates paid by landlords from 2027.
The move will likely push Chidi more out of the market – especially when compounded by concerns about the impact of the Renters Reform Bill.
The Office for Budget Responsibility (OBR) has warned the move will hit landlords’ profitability and push rents higher, with basic, higher and additional rates due to increase to 22 per cent, 42 per cent and 47 per cent, from 20 per cent, 40 per cent and 45 per cent respectively.
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Typical rents could rise by between £20 and £25 a month in England as a result, according to the National Residential Landlords Association (NRLA).
To some landlords, this will compound the effects of recent stamp duty reforms – which see second homeowners hit with higher tax bills when buying a home – and cuts to mortgage interest relief, which replaced the ability to deduct all mortgage interest costs from rental income for tax purposes with a flat 20 per cent tax credit, which happened between 2017 and 2020.
Speaking to The i Paper, Chidi, whose properties are worth between £250,000 and £350,000 each, said: “The Government plans squeeze the private landlords out of the market started a few years ago when the changes to prevent us from deducting mortgage payments from the revenue before paying tax slowly got phased in.
“This is especially difficult for higher rate taxpayers. The additional tax increase announced in the Budget came as no surprise.”
In its report the OBR said: “The measures announced in this Budget reduce returns to private landlords, following various measures over the past 10 years that have also reduced returns.
“This successive eroding of private landlord returns will likely reduce the supply of rental property over the longer run. This risks a steady long-term rise in rents if demand outstrips supply.”
Currently, as a higher rate taxpayer, if you get £15,000 a year and you have expenses of £3,000 and mortgage payments of £10,000, you should make £2,000 in profit and be taxed on this, Chidi believes.
But he explains: “Unfortunately, to calculate the tax due, the mortgage payment is not applicable. There is an interest adjustment that’s allowed but only at 20 per cent. The end result as a higher rate taxpayer is you are at an annual cash loss.”
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Selling up is something he has been considering for a while, but last week’s property income tax increase “further confirms this is the correct decision for me”.
He continued: “In my opinion, the ship for landlord investors has sailed, especially for the higher rate taxpayers.
“It still makes sense for those in limited companies or full time or higher scale property investors or developer, but not for me.”
His comments come after other landlords told The i Paper that the effects of the Budget will make them sell their properties.
One such landlord, Gerard Boon, told The i Paper: “Unfortunately, I believe this will ultimately harm tenants far more than it does the landlords paying the tax.”
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