Mortgage interest relief to change on buy-to-let homes in April

Buy-to-let residential landlords will soon experience the removal of their entire mortgage interest relief following the Government’s decision to limit tax relief, forcing thousands of landlords into higher income tax brackets.

From April, the amount of relief claimed back with mortgage interest will be phased down over the next three years until 2020/21.

From this point onwards, property landlords will only be able to claim back a basic tax rate deduction of 20% off their tax bill.

The National Landlord’s Association (NLA) believes that a significant proportion of the 440,000 basic rate tax-paying landlords will find themselves in the higher rate tax bracket in the coming years.

A recent example from mortgage broker, London and Country, demonstrates a basic rate taxpayer with a property rented out for £15,000 per year on an interest-only mortgage costing £10,800 per annum.

However, from April, the very same property landlord will be judged to have a full rental income of £15,000 a year.

In the event that same buy-to-let landlord held down a full-time job with a salary of £35,000 per annum, under the current tax regime they would be regarded a basic rate taxpayer with total income of £39,200. However, under the new system, they will have a combined income of £50,000 and move into the higher rate taxpayer bracket.

Richard Lambert, Chief Executive, NLA, said: “When the Government announced these changes last year, it claimed they would only hit a small proportion of higher-rate taxpayers. We now know that is complete tosh.”

Mr Lambert wants the Government to consider implementing the new rules only on new buy-to-let loans approved after April 2017.

“Unless this happens, landlords will face an impossible decision of whether to increase rents and cause misery for their tenants, or to sell-up, and force their tenants to find a new home,” added Lambert.

At TaxAssist Accountants we help property landlords and those with second properties across the country, providing financial advice regarding all aspects of buying, selling and letting property.

If you require one-to-one financial guidance, please don’t hesitate to contact your local TaxAssist Accountant on 01224 637100 or drop us a line using our online enquiry form.

Date published 23 Feb 2017 | Last updated 23 Feb 2017