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Buy To Let tax changes – will they affect me?

by Andrew Montlake on 5th February 2017

In 2015 the Government announced changes to tax relief on rental income from residential properties, which means that landlords may pay more tax in the future. If you do have a Buy To Let mortgage, it’s important that you understand the changes and whether they will effect the tax you pay.

They will be introduced gradually from 6th April 2017 and will be in place fully by 6th April 2020. Below is a short guide, but to see more detailed information please follow the link here to the HMRC website.

How tax relief is changing

At the moment, landlords can claim tax relief on finance costs such as mortgage interest payments , so they can offset the full amount of interest against their rental income when they calculate tax on profits.

Under the new rules, tax relief on finance costs can only be claimed at the basic rate, currently 20%, even if the landlord pays tax at a different rate.

You may need to pay more tax

These changes mean rental income will be considered part of gross income, which may increase the rate of tax you have to pay. This depends on your personal circumstances, but you should check:

  • If you will move from paying the basic rate to a higher rate of tax
  • If any entitlements you may have to benefits such as Child Benefit or tax relief on pension contributions, will be affected

How the changes will affect landlords

  • The changes will apply to individuals, partnerships and Limited Liability Partnerships (LLPs) that incur finance costs for UK and overseas residential let property
  • These changes don’t affect landlords holding commercial property or properties that qualify as “Furnished Holiday Lettings”. In addition, they don’t effect BTL residential property owned by a company
  • They are likely to result in higher income tax liability for many BTL landlords and may affect the overall profitability of their residential lets
  • Because rental income will form part of gross income, individuals may move from basic rate taxpayers into the higher or additional rate tax bands
  • Any entitlement to personal tax-free allowances and tax relief on pension contributions may be affected and entitlement to income-assessed benefits such as child benefit could be affected too

Contact a tax adviser

We recommend you seek advice from an independent tax adviser and start planning now, so you have things in place by next April.

We cannot offer you advice on these changes and what they may mean for you, but if you have any questions about your mortgage, please contact us here for a free review.

There is no guarantee that it will be possible to arrange continuous letting of the property, nor that rental income will be sufficient to meet the cost of the mortgage. Your property may be repossessed if you do not keep up repayments on your mortgage. A fee of up to 1% of the mortgage amount may be charged depending on individual circumstances. A typical fee is £495.



Written by Andrew Montlake

Managing Director

Andrew Montlake is more than a traditional MD, he is our very own brand guru, who knows everything there is to know about Coreco – so he’s our go-to guy when the media ask what we’ve been up to. As such, he is regularly quoted in the media with appearances on BBC and SKY TV as well as National and local Radio. It also surprises many to discover he’s actually a closet rock star, singing in Rogue Monkey when he’s not working at the coal face for clients like you.

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