What All Buy-To-Let Landlords Should Be Aware Of

by | Mar 23, 2017

What All Buy-To-Let Landlords Should Be Aware Of

When Chancellor George Osborne announced his summer budget, there was some news that didn’t make the headlines that all buy-to-let landlords should be fully aware of.


In order to make the market ‘fairer’ landlords will no longer be able to claim full tax relief on mortgage interest. Currently, those buying a property for the purposes of letting it out can deduct numerous expenses from any rental income they receive on renting out the property. These expenses include any mortgage interest. This is the case whether or not the buyer has taken out an interest-only mortgage or a repayment mortgage.


However, the new ruling now states that mortgage interest relief will be restricted to the basic rate of income tax and will be gradually phased in from April 2017. With 15 per cent of new mortgages being buy to lets and 80% of these mortgages being interest only, this will create a huge impact on landlords.


At the moment, landlords are able to claim tax relief on their mortgage interest payments at the rate of tax they pay. This means that if they’re a higher-rate taxpayer they are currently able to get 40% tax relief on the mortgage interest they’re paying. Under the new rules this will be restricted to 20% – the equivalent of the basic rate tax – regardless of what rate of tax they’re paying.


Osborne didn’t finish there, he also scrapped the wear and tear allowance where landlords of furnished properties can deduct 10 per cent of their rent from their profit to account for wear and tear, irrespective of their expenditure. From April 2016, the Government will replace this allowance with a new system where only actual incurred costs can be deducted. In addition to this extra stamp duty is levied to anybody owning more than 1 property.


A Limited Company, or a Limited Liability Partnership, may be a more tax efficient way of owning buy to let properties. Careful control over how much income is drawn from the company by its shareholders could reduce tax implications.


Whatever your buy to let plans may be, we will be able to advise you on the most appropriate business structure for you. We will also be able to offer guidance on the financial implications of that choice, including corporation tax liabilities and dividend planning.

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