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Author: JP / / Latest News

Restriction of Buy to Let Interest

In the summer budget 2015, it was announced that the mortgage interest relief for buy to let landlords would start being phased out from 2017/18 onwards and restricted the basic rate only from 2020/21.

For some landlords this will result in a significant increase in the tax payable as their rental profit will now be taxed at higher rates. This is because mortgage interest will no longer be an allowable deduction in arriving at rental profits.

For example a landlord with £60,000 of gross rental income, £6,000 of agent’s commission, £8,000 of repairs and other expenses and £40,000 of interest would currently have £6,000 of net rental profits. From 2017/18 the interest relief will start to be restricted and from 2020/21 there will be no deduction for interest, which would mean that assuming the rent and expenses remain the same, the taxable rental income would be £46,000.

For landlords this will mean that some of the rent will fall into the higher rate tax band even if they have no other income and the £40,000 interest will only result in an £8,000 basic rate ‘tax reducer’ to set against the tax liability.

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