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Buy To Let Tax Changes April 2017

Buy To Let Tax Changes April 2017

14th March 2017

We are now fast approaching the second phase of the Government’s crackdown on private Buy-to-Let landlords, with the restriction on the lucrative tax relief claimed on rental properties. The first, being the rise in Stamp Duty for 2nd home and investment purchases which came into effect following last spring’s budget. This had the desired effect of slowing down the stampede and probably stopping many cautious or first time investment purchasers, but many seasoned and canny buyers realised that the long term forecast for the housing market, especially in the south east, is likely to continue its upward trend and whilst the additional costs are a burden, the capital growth is the prize.

Currently a private landlord can offset the whole of their mortgage interest, council tax, insurance, property repairs and maintenance, legal, management, letting agent fees, ground rent, other property related expenses and even interest on loans used to purchase furniture, against the profit they make on their rental income; substantially reducing their tax liability.


How Will The Changes Work?

The new changes will come into effect with the start of the new tax year commencing April 2017, with the amount that can be off set against tax, stepping down by 25% each year until reaching zero in 2020. From 2020 Private landlords will be liable to pay tax at their prevailing income tax band on the whole of the rental income and will only be able to claim basic rate tax relief (20%).

These changes will have the greatest implication for the higher rate taxpayer but could also affect those paying the basic rate of tax. Under the new rules, income will now be calculated before the deduction in interest relief (allowing for the 25% step down each year between 2017-2020) that could when added to your employment or any other income, push you into the higher 40% tax bracket and also have implications on Child Benefit and Income Tax Credits.


Reduction In Mortgage Interest Allowance

  • 2017-2018 = 25% Reduction
  • 2018-2019 = 50% Reduction
  • 2019-2020 = 75% Reduction
  • 2020 onwards = 100% Reduction



We’ve illustrated some examples above on what the tax changes will look like, which are based upon a property purchased at £300,000 with an annual rental income of £12,000 and a £240,000 mortgage incurring £10,800 interest per annum.


What Effect Will This Have On The Market?

We are already seeing a slow down in purchase of properties for buy-to-let purposes, but this has given way to an increase in the number of first-time-buyer purchases. We expect the strong demand for properties in this sector to continue for the foreseeable future.