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Q Can you explain the tax changes that have been introduced for buy-to-let landlords as I am about to file my tax return
A This is a question we have been asked a lot at Belvoir, and it’s not an altogether simple one to answer.
The tax changes only apply to individual landlords who let property in the UK, those who let in a partnership or Trustees of a trust directly holding UK residential property. The new tax rules won’t apply to companies or landlords of furnished holiday lets.
In short, the main change being made under the new tax rules, is that landlords will no longer be able to fully claim tax relief on their mortgage interest payments and related finance costs.
Changes to Landlord Tax
Previously, landlords have been able to deduct a number of allowable expenses along with mortgage and other finance expenses from their rental income and just pay tax on the difference. Now however, tax relief on finance costs will be restricted to the basic rate of Income Tax with the restrictions being phased in gradually from 6 April 2017 until fully in place from 6 April 2020.
You’ll still be able to deduct some of your finance costs when you work out your taxable property profits during the transitional period. These deductions will be gradually withdrawn and replaced with a basic rate relief tax reduction.
| Tax year | Percentage of finance costs deductible from rental income | Percentage of basic rate tax reduction |
| 2017/18 | 75% | 25% |
| 2018/19 | 50% | 50% |
| 2019/20 | 25% | 75% |
| 2020/21 | 0% | 100% |
We would advise you to take some professional advice regarding how this will affect you based on your particular personal circumstances. There is also more information on the full impact of the changes and case studies published by HMRC which can be accessed on www.gov.uk
