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BTL tax change – Rental income vs personal income

10.05.22

What is the BTL tax change?

Landlords with properties in their own name have just come to the end of the most recent tax change, as the sliding scale for rental income being added to personal income ended in April 2020.

That means any tax returns going in for the 2020/21 tax year will have the full rental income added to their personal income and taxed at their full marginal rate.

Is there any tax relief for the BTL tax change?

Such landlords can, however, claim back 20% of the mortgage interest they have paid as a tax credit. This means for basic rate taxpayers there is little overall change but for higher or additional rate taxpayers the amount of tax they pay will roughly double the old tax regime.

Example: –

  • A landlord collects £1,200/m in rent and pays £700/m in mortgage interest.
  • They pay tax on the full annual rent of £14,400
  • The annual interest is £8,400
  • The tax credit will be £1,680 (£8,400 x 20%)
  • A basic rate taxpayer pays £2,880 in tax less the credit of £1,680 resulting in a net tax bill of £1,200
  • A higher rate taxpayer pays £5,760 in tax less the credit of £1,680 resulting in a net tax bill of £4,080

Despite all these changes, owning rental investment property continues to be popular and the use of limited companies to do so in what is for many a more tax-efficient way is growing significantly. If you would like to know more about the options landlords have prior to discussing with an accountant, please contact us here.

Coreco are not tax advisers and you should check your personal position with a fully qualified tax adviser

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