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Buy-to-let tax changes in April 2017

Over two years ago the Government announced a series of changes to the tax rules for the buy-to-let industry.  The intention was to diminish the sector’s appeal to investors and tackle the UK housing shortage.
George Osborne’s Summer Budget of 2015 came as a bit of a shock for many buy-to-let landlords.  Restrictions on buy-to-let mortgage tax relief were announced causing many landlords to question their ability to make a profit.
Until now, landlords have been able to claim tax relief for finance costs on buy-to-let mortgage payments when they complete their tax return, allowing them to offset mortgage interest against rental income.  Changes are being made to this system gradually from April 2017, with full implementation by 2020.
In effect, by 2020 landlords will be taxed on their turnover rather than profit. Lisa Wilson, Tax Partner at Cowgill Holloway briefly explains the changes and their implications.
Phased reduction in tax relief over the next 4 years
The phasing in of mortgage tax relief began on 1 April 2017.  Property investors who previously deducted costs incurred from their payable tax will be able to claim tax relief on their finance costs at the basic rate of 20% by 2020, regardless of what income tax bracket they fall into.
Therefore, those in the higher and additional rate bands will pay more tax.
The timetable for implementation is as follows:

  • 2017/18 – the deduction from property income restricted to 75% of finance costs with the remaining 25% available as basic rate tax reduction.
  • 2018/19 – 50% finance costs deduction and 50% basic rate tax reduction.
  • 2019/20 – 25% finance costs deduction and 75% basic rate tax reduction.
  • 2020/21 – 100% of finance costs given as basic rate tax deduction.

In short, the buy to let landlord will no longer be able to offset the full cost of their mortgage and the Government has said that it expects nearly 1 in 5 landlords will pay more tax as a result.  There could be additional consequences such as exceeding the Child Benefit income threshold, or seeing a reduction in your income tax personal allowance.
Further, this comes a year after the Government imposed an additional 3 per cent stamp duty hike on buy-to-let and second homes placing an additional squeeze on buy to let landlords.
What can landlords consider?

  • If you are a higher rate tax payer with a spouse who does not work, consider transferring a beneficial interest in the property so that rental income can be received by them, allowing them to maximise their tax-free personal allowance, and basic allowances thereby reducing the total tax payable.
  • As limited companies are not affected by the changes to mortgage interest tax relief, landlords have increasingly been looking to incorporate. However there can be significant tax implications such as Stamp Duty Land Tax and Capital Gains Tax and it is imperative that expert professional advice is sought before going down this route.
  • Review mortgages on buy-to-let properties to ensure that rates are competitive.

To discuss the implications of these changes on your situation or for any other tax advice contact Lisa Wilson at Cowgill Holloway on 01204 414243 or at lisa.wilson@cowgills.co.uk

This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.


The information was correct at time of publishing but may now be out of date.

Posted by Cowgills
13th April, 2017
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