Changes to buy to let mortgage interest relief mean that many will see their tax bills rise.

Instead, mortgage tax relief was fairly straightforward until it started reducing from April 2017.

How to get it right as a first time landlord?

The main changes to buy to let mortgage interest relief:

  • The way your tax bill is calculated on rental income is changing by April 2020. Landlords will not be able to deduct mortgage interest from rental income before calculating taxable profit. Landlords may be able to claim a tax reduction equal to the basic rate of income tax, currently 20 per cent, which is less generous than the old system for landlords eligible for the higher or additional rate of income tax.
  • The government has introduced a transition period of four years to phase in the new system of calculating mortgage interest tax relief. The amount of mortgage interest tax relief each year will be as below.

How to build a buy to let portfolio

How much mortgage tax relief can landlords claim every tax year:

  • 2017/2018: 75%
  • 2018/2019: 50%
  • 2019/2020: 25%

Tips on managing landlord-tenant relationships

From April 2020, landlords will no longer be able to deduct the costs of servicing their mortgages from their rental income. Instead, you may receive a 20% tax reduction for your mortgage interest. This means that the final tax bill will be reduced by 20% of your eligible finance costs.

Expenses you can offset against tax as a landlord

However, this will be calculated as 20% of the lowest of:

  • Disallowed finance costs at the higher rate (interim period)
  • Overall property profit before tax
  • Your adjusted total income over and above the personal allowance

How to make your property more attractive to tenants?

For higher and additional-rate taxpayers, landlords will not receive all the tax back on mortgage repayments. In fact, the credit only refunds tax at the basic 20% rate. Landlords may be pushed up into the higher tax bracket as the rental income you will have to declare will be higher. This will depend on income from other sources, such as salary or pension.

Private landlords can avoid the hit that these changes will cause by setting up a company that owns their rental properties

What is West London Property Networking

If you have any questions on property management, please contact Pelin Martin to book a 30-minute free consultation on +0208 994 7327 –