Tax Changes for Landlords


Restricting loan interest relief for ‘buy to let’ landlords

Research from the Residential Landlords Association suggests that 133,000 dwellings will be taken out of the English private rental sector during the coming year due to the legislation restricting landlords' mortgage interest relief and the 3% Stamp Duty Land Tax charge on the purchase of additional homes.

If you are a landlord with an investment in buy to let property, you may already know about the tapering of the deductions for finance costs related to residential property, which started in the last tax year 2017-18. In a nutshell, where a deduction was allowed for mortgage interest (or other dwelling-related loan) in calculating the profits of a property business, the amount now allowed to be deducted in respect of those costs for income tax purposes is tapered to:

  • 2017/18 tax year – 75% of the interest
  • 2018/19 tax year – 50% of the interest
  • 2019/20 tax year – 25% of the interest
  • 2020/21 tax year and beyond – 0%

Landlords are no longer able to deduct all of their finance costs from their property income. 

Individuals will however be entitled to a tax reduction, calculated as 20% of the lower of the disallowed finance costs, the total property profits or the adjusted total income (exceeding Personal Allowance). This is demonstrated in the below example.

EXAMPLE: An individual makes property income of £15,000 each year after deduction of allowable expenses. Allowable expenses include mortgage interest which will be tapered over the next few years, so while the individual still makes £15k, the rental profits deemed to be taxable will increase as shown.

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If these changes are likely to impact on you and you are unsure of your options, feel free to drop us a line. GSM are highly experienced in advising on the tax issues affecting property investors and whether you are a seasoned landlord or just starting to climb the property ladder, we are here to help.

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