New buy-to-let tax and how it will work for you

 

Last week saw the introduction of rather significant changes to the taxation of buy-to-let investments in the UK, leaving some landlords puzzled as to how it will affect them.

Since April 6, last Thursday, buy-to-let investors became unable to offset all their mortgage interest against their profits. Over the next three years, until 2020, landlords will become unable to deduct interest from their tax.

https://www.buyassociation.co.uk/2016/10/25/mortgage-tax-relief-changes-wont-stop-landlords/

These changes mean that, in the long-run, many landlords will have to pay more in tax. Or, even worse, will be taxed on profits that don’t actually exist.

What does this mean?

Payers of higher tax rates will no longer be able to offset all their mortgage interest against rental income before calculating the amount of tax they’re due to pay.

This reduction is being slowly introduced, in phases, between now and 2020 and will eventually be replaced by a 20% tax credit.

The phases are as follows:

  • 2017: 75% of mortgage interest against profits are deductible
  • 2018: 50% of mortgage interest against profits are deductible
  • 2019: 25% of mortgage interest against profits are deductible
  • 2020: 0% of mortgage interest against profits are deductible

The move will mainly affect those already paying income tax at a higher rate, it will also push some basic-rate payers into a higher bracket once their rental income has been added.

The changes will only apply to those classified as private individual landlords and not those owning property through companies.

What should you do?

Landlords will have to do the numbers and be more focused on their costs, Alistair Hargreaves of mortgage broker John Charcol told The Telegraph.

“Landlords need to plan and be prepared. If they are already a landlord and are putting off understanding the impact of the tax on them, they need to see their tax adviser and ask what the damage is.”

https://www.buyassociation.co.uk/2017/04/06/invest-hmo-property-infographic/

And those who only own a smaller portfolio or who know the new tax effects won’t hit them as hard will have to focus on costs. Options include changing to a lower mortgage rate or raising rents.

If you are a landlord and uncertain how the new tax changes will affect you, you can calculate any changes to your profits using The Telegraph’s buy-to-let calculator here.

Highgrove Mews

High Net Yield Freehold Houses

  • Commutable to London (27 mins to central Paddington station)
  • Rental demand extremely strong with large industry presence in Reading
  • Freehold with 4% net yield

£284,955 - £457,000

St Petersgate – Stockport Manchester

New Launch - Stockport Manchester, apartments from £160,000

  • Discounted launch prices from £160,000
  • Excellent transport links with 3 trains per hour to London Euston and only 9 mins journey to Manchester Piccadilly
  • Experienced development team

Assured Rent Housing Association Leases

Assured Rent Housing Association Leases

  • Assured rent & no rental voids
  • Tenant damage cover & newly refurbished inline with requirements of a corporate sitting tenant
  • Free property and lettings management

From £62,000

Emerging Birmingham Commuter Town With Properties From Just £104,000

The emerging Birmingham commuter town where properties are selling in an average of just 24 days

  • A collection of 62 two bedroom apartments and 28 one bedroom apartments.
  • DE14 is one of the fastest selling postcodes in the West Midlands.
  • 23 minute train journey into Birmingham New Street Station.

Properties from £104,000

Mill, Stockport

The Northwest's emerging property hotspot

  • Discounted off-plan 2-bed prices from £162,000
  • Completion date - Q4 2021
  • Rental yields - 6% plus

Discounted off-plan 2-bed prices from £162,000

South Central – Birmingham City Centre Apartments

Highly anticipated 28 storey launch in Birmingham City Centre with an impressive roof garden and communal facilities.

  • 154 units across 28 storeys
  • Residential multi-media community room, gym, roof garden and sky cinema
  • Excellent future connectivity via the metro system to other key transport hubs and locations around the city

from £205,800

ba-

Talk to us

Speak to our UK property experts today: 

+44 (0) 333 123 0320

Open from 9am-6pm GMT

+852 9865 4446

Open from 9am-6pm HKT

Stamp Duty Calculator

.

Unlock members only investment opportunities and full development details. Join now – it’s free, quick and easy.

Login

Not a member? Sign up for free

New buy-to-let tax and how it will work for you

New buy-to-let tax and how it will work for you

Example

By submitting your details via this online form you agree to be contacted via email/phone/SMS by Direct Marketplace Ltd t/a BuyAssociation in relation to property investment and property developments . We do not share your personal details with third parties.  To view our full Privacy Policy click here.