Property Taxation

Changes to the way landlords can claim buy-to-let mortgage interest tax relief have been a long time coming. The buy-to-let market’s gone through a lot of changes since then, but the introduction of the tax changes has rarely been in doubt.

Landlords have therefore had plenty of time to prepare for the restriction of mortgage interest tax relief, which is set to significantly affect higher-rate taxpayers.

The tax changes will be gradually phased in over the next four years.

What is happening?

From April 6, a reduction of buy-to-let mortgage interest tax relief will be phased in, gradually being reduced to the basic rate of income tax (20%) by April 2020. This means that in four tax years’ time, the ability of higher-rate tax-paying landlords to deduct mortgage interest from their tax bill will have been halved.

It’s important for landlords to remember that the reduction’s being phased in over the next four tax years. For example, in 2017/18 the allowable deduction from property income will be restricted to 75%. The following year (2018/19) it’ll be reduced to 50% and in 2019/20 it’ll be reduced by a further quarter to 25%. By 2020/2021, all landlords’ finance costs will be claimed at a basic rate of tax reduction.

How you can prepare for the new system:

– Speak to an expert

The changes to mortgage interest tax relief are complex, and so speaking to an expert about your options and how you might be affected could be vital. Financial advisers, tax experts or accountants should all be able to help.

– Consider your alternatives

There are several ways landlords can minimise the impact of April’s tax changes – the most popular of which seems to be incorporation.

Incorporation is the act of transferring ownership of a property portfolio to a limited company, meaning you’ll only be liable for corporation tax and won’t be affected by the impending changes to the system. See our previous point above, and please speak to an expert before considering taking this measure.

Other alternatives which would deem a landlord exempt from tax relief restriction are taxpayers who fall below the threshold for paying income tax, those who transfer the property to a spouse who doesn’t pay tax, or those who don’t take advantage of mortgage interest relief in the first place.

Contact our team

Contact us for a free, no obligation quotation or to discuss further if you are in any doubt as to whether you need to complete a tax return.

A quick call to our team will put your mind at ease and we will be able to quickly advise on your situation.

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