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Buy To Let tax changes – will they affect me?


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.


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Andrew Montlake

Written by Andrew Montlake

Andrew Montlake, better known as Monty, began his journey with an Hons degree in Economics & Politics before starting in the mortgage industry in February 1994. As a main founder of Coreco in 2009, he successfully grew the brand, marketing, and communications, and was made MD in 2019 focussing on the overall vision, strategy, and culture of the company. As Coreco’s media spokesperson, Andrew can often be seen or heard on TV and radio as well as regularly commenting in the national, local, and trade press. He is the author of this acclaimed Mortgage Blog and is well-known for his social media, podcasts, and public speaking. Andrew is now proud to serve as Chairman of the Association of Mortgage Intermediaries, (AMI) as a cheerleader for the Mortgage Industry as a whole and continues to work at the coal face, writing mortgage business and advising clients.

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