Rob Hill is angry that his tax bill will go up £3,000 from April. Chris Cooper is furious that his personal tax bill will nearly double. Other landlords say that their effective tax bill will rise to 100%. As the buy-to-let market reels from last April’s stamp duty hike, and awaits the tightening of lending criteria starting in January and the steep increase in tax being phased in from next April, is the party over for Britain’s two million landlords?

Hill has three rental properties in south-west London, but says landlords are “getting a bashing” from the government’s changes to the tax regime, accusing it of ruining the retirement plans of thousands of people. An estate agent himself, he has let out a flat and two houses in Clapham for the past 10 years, which earn him an annual rental income of £40,813 after service charges and letting fees. The mortgages cost him £13,770, leaving him with a profit of £27,042. Currently he is liable for 40% tax on this, so the bill is £10,816.

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But from April the government will begin to withdraw the tax relief landlords currently enjoy. At the moment, buy-to-let investors can offset all the mortgage interest against their tax bill, but this will be reduced in stages between 2017 and 2020, cutting the relief rate from 40% to a flat rate of 20%. (The full details and worked examples are explained on the next page.)

For Hill, it means he will be taxed at 40% on his turnover of £40,813, which comes to £16,325. Then he applies the 20% basic-rate tax relief of £2,754, which will bring his tax bill to £13,571 – nearly £3,000 more than in this tax year.

But with relatively small mortgages, Hill admits he’s in a better situation than many. He cites an investor who recently bought a flat in Soho for £985,000 through his estate agency, with a £650,000 mortgage. The landlord makes a profit of just £3,343 a year on the deal, but by 2020-21 will be making an annual loss of £554 – and that’s before the boiler breaks down or there’s a void period.

“There’s a housing shortage, and landlords help this by providing accommodation – but they are being vilified,” Hill says. “Interest rates will go up at some point, and that will be the final nail in the coffin – many will have to sell. The government is penalising landlords at a time when confidence in the pensions system is at an all-time low. Many people put money in buy to let instead and now the goalposts are being moved drastically. In what other business can you not write off a fixed cost against tax?”

But the tax change is just one of three blows to landlords: since April, anyone buying a home that is not their main residence has had to pay a 3% stamp duty surcharge – for a £200,000 buy to let in England and Wales it meant the tax jumped from £1,500 to £7,500. And from 1 January, tough new affordability criteria imposed by the Bank of England means borrowers will be limited to smaller loans (see overleaf). Someone who previously qualified for a buy-to-let mortgage of £190,000 might find they can only borrow £150,000 in future.

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Tenants who see themselves as toiling to pay their landlord’s pension, however, may see it another way. As Reuben Young of campaign group PricedOut says (see below), the changes are “fantastic news” and will level the playing field for first-time buyers competing for homes with landlords.

But critics warn the clampdown may force up rents – and argue that they are not all fat cats. Cooper, 55 and from Windsor, is a landlord with 15 properties across the country, from Crawley in the south to Grimsby in the north. On paper he appears to be a millionaire, with the properties worth a total of £2.4m. But Cooper works as cabin crew on an airline earning £34,000 a year, and says he began doing buy to let to supplement his otherwise meagre pension.

His total rental income is £104,000 a year, but mortgage interest and charges are £88,000, leaving him with an annual profit of £16,000. Added to his pay it brings his annual income to £50,000. Currently he pays £12,320 tax and national insurance on that, but once the tax changes are fully phased in by 2020 his bill will rise to £22,720. Figures prepared by his accountant suggest the tax on his rental income will rise from £4,600 (or 29% of his profits) to £14,900, or 93% of his profits. If interest rates rise he says he will have to pay tax in excess of his profits.

Cooper is already increasing rents. Until now, he says, he has kept rents on his properties at around £500 a month when he could have charged market rates of around £550 because he wanted to attract good, long-term tenants. But now he says it is likely he will have to raise rents to above the market average to protect himself from the tax rises. The alternative would be to sell up, with many landlords weighing up the cost of the annual tax increases against the capital gains tax liability if they “crystalise” their property profits and sell up.

If landlords sell, their tenants will have to leave … there will be less rental property, so rents will rise

“I think a perfect storm is brewing in the rental market,” says Cooper. “There isn’t enough property being built of any tenure in the UK. Landlords will either have to raise rents or sell because of the tax rises. If they sell, their tenants will have to leave. But then there will be less rental property around, so rents for other places will rise. It’s supply and demand.”

Cooper was one of a group of landlords so enraged by the changes that they took their case to court. But the Axe the Tenant Tax group, represented by Cherie Booth QC, lost the case, and hopes of a reprieve in the autumn statement from new chancellor Philip Hammond were dashed.

Instead, many landlords are scrambling to restructure their properties into corporate vehicles to avoid the tax. The Buy to Let Britain report from Kent Reliance last week found that some landlords have set up limited companies, while others have transferred properties to family members. In the first nine months of this year, it said, 100,000 limited company loans were taken out by landlords buying properties – double the number for the whole of 2015. Over the page we detail how this works.

But according to Cooper, despite the high-profile court case, many buy-to-let investors are still unaware of the forthcoming changes. “A lot of landlords are sleepwalking into disaster,” he says.