Buy to let landlords are collecting around £16 billion a year in rent from private tenants, according to an analysis of official data.
More than 1.9 million landlords generated an income from residential property in 2015 -16 – and the number increased by 100,000 a year from 2011-12, says financial firm NFU Mutual after crunching numbers from the Office of National Statistics.
The rents from buy to let surged by a third – £4.1 billion – to £16.2 billion over the four-year period.
But the figures are expected to dive as new tax rules bite the buy to let sector by 2020 that will result in landlords in the higher tax brackets paying more of their profits to HM Revenue & Customs.
Rents are also standing still as property prices stall in London.
Tax trap warning
These factors have prompted the firm to warn landlords who want to sell up that a capital gains tax trap is waiting to ensnare them.
“It’s likely we’ll see the number of landlords start to plateau or even fall over the next few years as property investors start to feel the pinch from a series of tax measures that have already come into force. And if more people sell their investment properties, there are likely to be more tax charges to pay,” said Sean McCann, a chartered financial planner with NFU Mutual.
“Many of our customers work in partnership with their spouse or civil partner to reduce their combined tax bills, taking advantage of everyone’s income tax and CGT allowances by transferring shares and property between them. It often makes sense to transfer income producing assets to a spouse or civil partner if they pay a lower rate of income tax.
“We’ve been warning customers to watch out for potential tax traps. In some circumstances, transferring property between spouses could trigger a stamp duty charge. Any transfer of assets to someone you aren’t married to could do the same.”
£86,000 buy to let gain
Meanwhile, letting agents Countrywide has produced a report showing landlords selling buy to let homes last year made a gain of £86,651 after owning the property for 8.7 years.
The size of the gain depended on where the property was located – those in London had the largest profit of £253,981, while those in the Northeast saw a return of £23,874.