An update on buy to let tax regulations

The tax regulation surrounding buy to let have been undergoing changes for the last few years, so here is an overview of the key issues that could affect your property portfolio, and your profits.

Mortgage interest tax relief

Up to April 2017, landlords were able to deduct mortgage interest payments before they calculated their tax bill. This meant they were taxed on profits not turnover. For the 2017-18 tax year, which is due in January 2019, they can only claim 75% of their mortgage interest. This percentage will continue to drop each year, until it’s fully replaced in 2020-21 by a tax credit limited to the basic rate of tax, currently 20%. This change will have an impact on higher-rate tax payers and could potentially push some basic-rate taxpayers into a higher rate bracket as you will need to declare the income that was used to pay the mortgage on your tax return.

This change in tax relief only affects private landlords, rather than those who own their properties through a business. So, by setting up a business that owns their rental properties, landlords will be able to continue to declare rental income after deducting the mortgage. However, mortgage rates for businesses are more expensive than for private landlords, which could cost more than you would save in higher tax relief.

Capital gains tax

The rules around capital gains tax on property can be quite complex. What you to pay, again, varies depending on if you are a private landlord or have set up a company to manage your portfolio.
If you own the home as an individual, you will need to pay capital gains tax on growth in the value of the property. For the 2018-19 tax year, you’re allowed to make an annual profit of £11,700 on properties before paying the tax. You can also deduct buying and selling fees and claim relief on significant home improvements. Originally the government had planned to make individual landlords pay capital gains tax within 30 days of selling properties. This has now been deferred until April 2020. Currently, buy-to-let investors can wait until their next tax return to settle outstanding capital gains tax.

Stamp duty

In April 2016, the government introduced a 3% stamp duty increase on second-homes and buy to let properties in England and Northern Ireland. This new tax has had a significant impact on landlords, with the bill on a £200,000 home rising from £1,500 to £7,500. The situation is in Scotland and Wales is slightly different.

So, as you can see there are some significant changes and potential pitfalls for the buy to let landlord whether you own one house or many. It is certainly worth taking advice on how these changes will affect you.

It is recommended that you always seek advice from an Accountant.



Your property may be repossessed if you do not keep up repayments on your mortgage.

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