Richard Evans, Financial Editor of The Telegraph highlights the absurdity of George Osborne’s proposed tax changes for landlords which will result in them paying on losses rather than gains. He described the new regime as “inane and incoherent” and further says this monstrosity requires immediate removal from the statute book and Theresa May, despite her many pressing duties, should ensure that it happens.

Here is an example of what landlords can expect if this tax changes goes ahead:

From 2020, landlords will no longer be able to deduct the cost of their mortgage interest from their rental income when they calculate the tax due.

So tax will be paid on turnover rather than profit, meaning tax could be due on non-existent income.

For higher rate taxpayers, mortgage costs above 75% of rental income will make their but to let investments loss-making.

Mortgage interest relief will be restricted to 20%, meaning that higher and additional rate taxpayers will be particularly affected.

Example: Landlord pays 40% tax. His BTL earns £20,000 a year and the interest only mortgage costs £13,000.  Tax is due on the profit. You pay tax on £7,000 meaning £2,800 for HMRC and £4,200 for you.

From 2020 tax is due on your full rental income of £20,000, less a tax credit equivalent to basis rate tax on the interest.

You pay 40% tax on £20,000 (£8,000), less the 20% credit (20% of £13,000 equals £2,600).

HMRC gets £5,400 and you get £1,600. Your tax bill has gone up by 93%.