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An Overview To The Changes To Landlord Tax

From 6 April 2017, the government is making changes to the way landlords are taxed in the UK. These landlord tax changes will be phased in over the next four years and will not be applied at the full rate straight away – allowing landlords to take necessary action over time.

Who will the changes affect?

These changes will only affect landlords in the list below who have a mortgage for their rental property.

  • Any UK resident who lets a property in the UK or overseas

  • Any non-UK resident that lets a property in the UK

  • An individual who lets properties in partnership with others

  • Trustees or beneficiaries of a trust

NOTE: These tax changes will not apply to landlords of furnished holiday lets and commercial properties

What do the landlord tax changes mean for me?

No more tax relief on mortgage interest payments

The main change being made under the new tax rules, is that landlords will no longer be able to claim tax relief on their mortgage interest payments – so this change will only affect landlords who have a mortgage and not those who own their property outright.

However, the majority of buy-to-let landlords have an interest-only mortgage.

Currently, landlords can deduct allowable expenses and mortgage interest payments from their rental income and pay tax on the difference.

But from April 2017, landlords will only be able to claim tax relief at the basic rate of 20% on whichever figure is lower:

  • Finance costs – including mortgage interest payments, loan repayments, overdrafts

  • Profit from your rental income – calculated as rental income less allowable expenses

  • Total income – calculated as anything above the personal allowance after deducting losses and tax relief

If you work, your salary and your rental income will be added together and the rate of tax you pay will be calculated from this value. This could mean that some landlords who are in a lower tax bracket are pushed into a higher tax bracket, as the new rules will increase their total annual income.

When will the changes happen?

The changes are being phased in from April 2017 to April 2020.

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