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.

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.”

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.

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

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


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