What Are The New Landlord Tax Changes?


What Are The New Landlord Tax Changes?

We’re now into a new financial year and it’s one that many Landlords won’t have been looking forward to. The way that rental income is calculated is changing with relief on mortgage interest getting phased out over the next 4 financial years. Many including myself would argue that this is very unfair given that mortgage interest is the cost of owning property. It’s like considering the money paid for a meal in a restaurant profit without allowing deductions for the cost of ingredients! Still, like it or not, it appears here to stay and even with a General Election now upon us it seems very unlikely that any of the parties will be looking to change this in the near future.

Not all Landlords are affected as there will still be a 20% allowance against mortgage interest, meaning basic rate tax payers may not lose out. Basic rate tax payers who are earning close to the higher rate bracket might still suffer though as their rental income could push them up into being higher rate tax payers.

The typical Derby Landlord who owns a couple of small houses would probably find their rent and costs would be something similar to the numbers below (maintenance costs haven’t been included).

Rental Income   £12,000
Mortgage Interest   £7,500
Insurance & Letting Agent Costs               £1800


Under the previous arrangement a higher rate tax payer would have had a tax liability of £1080 whereas with the changes getting phased in over the next 4 years this is going to more than double to £2,580.As shown below the relief available will drop by 25% each year  

Current Financial Year 75%
Year ending 5th April 2019 50%
Year ending 5th April 2020 25%
Year ending 5th April 2021 0%

The below table shows the impact that would be had on the tax bill over the next 4 years with the amount rising incrementally all the way up to £2580.

2016-17 2017-18 2018-19 2019-20 2020 onwards
Rental income £12,000 £12,000 £12,000 £12,000 £12,000
Mortgage Interest £7,500 £7,500 £7,500 £7,500 £7,500
Insurance & Letting Costs £1800 £1800 £1800 £1800 £1800
Reduction in mortgage interest allowance £1,875 £3,750 £5,625 £7,500
Total Rental Income on which tax is payable £2,700 £4,575 £6,450 £8,325 £10,200
Tax at 40% £1080 £1830 £2580 £3,330 £4,080
Tax Relief at basic rate- 20% of the reduction in mortgage interest allowance £375 £750 £1,125 £1,500
Total Tax Payable £1,080 £1,455 £1,830 £2,205 £2,580

This change comes on top of the additional stamp duty that Landlords now have to pay and the removal of the automatic 10% deduction allowable for wear & tear. From April 2019 Capital Gains Tax will also need to be paid within 30 days of the sale of your investment rather than you being able to wait until the January following the end of the tax year to pay it. Finally if the ban on letting agents being able to charge tenants fees is concerned then this will also see letting agents having to increase their charges to Landlords. All combined it doesn’t make for a very friendly tax regime for Landlords!

The reality is that no-one is going to feel sorry for Landlords and it is very unlikely that any of these changes is going to be reversed. Property can still be an excellent investment but it is going to be increasingly important to run your portfolio as efficiently as possible and maximise your possible returns. One advantage that Landlords in Derby have is that the rental yields available are higher than what are achievable in many other parts of the country so it will still be possible to have a profitable property portfolio.

If you would like to have a free no-obligation review of your property portfolio or just to pick my brains on anything property related then please do get in contact on either 01332 30 30 30 or andrew@aksresidential.com

Click Here To Read 5 Essential Things To Consider For A ‘Buy To Let’ Property

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