Changes to Tax Relief for Buy to Let Landlords


Currently individual landlords can deduct their mortgage interest costs from their rental income when calculating the taxable profits on their investment (buy to let) properties. This means they get tax relief on the interest at their full marginal rate of tax.

However, from 6th April 2017 the rules are changing to limit tax relief to basic rate only. This means a high-rate taxpayer will get only 20% relief rather than 40%. This change is to be phased-in over four years.

In the 2017/18 tax year landlords will still be able to deduct 75% of their mortgage interest costs at their full marginal rate. This will reduce to 50% in 2018/19 and 25% in 2019/20. From 2020/21 all tax releif on mortgage interest costs will be at basic rate only.

To calculate if you will be worse off when the changes take full effect, add the gross annual profit on your rental property(ies) to your other income. If you are still a basic-rate taxpayer, your position is unchanged (note the higher-rate threshold is scheduled to rise to £50,000 by 2020).

Higher-rate and additional rate taxpayers should work out their tax liability under the new rules and calculate how much after-tax income they would have. The difference between this and your current net income is what you will lose.

Some landlords may consider the potential for capital growth outweighs the disadvantages resulting from the new rules. However, if you are not optimistic that property prices will continue to rise in your area, it may be time to consider selling.

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