A guide to taxes for buy to let investors

 

 

 

 

 

 

With a number of changes made to property buying and its relative taxes, Tristan Hartey explores the changes and how they can affect buy-to-let investors.

Prospective private landlords will be faced with a new stamp duty land tax surcharge, adding a hefty three per cent to the up-front tax bill when buying the investment home. In an effort to avoid the charge, a stampede of buy-to-let investors has ramped up activity in the property market in recent months, pushing house prices to a fresh record in the process.

That’s not all. Now the rules that allow landlords to offset all of their mortgage interest against their tax bill will be phased out, this means that by the end of the decade higher-rate tax payers will get half the relief they do now.

The government has now published the detail of how the change will be phased in;
• in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
• in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
• in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
• from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction

So, from April 2017 (to the extent that there is rental income against which it can be offset) a quarter of the mortgage costs attracts 20% tax relief, and the other three quarters can be offset against income in full and thus will attract tax relief at the taxpayer’s marginal rate of tax. The year after it’s half and half, then three quarters/one quarter, and finally in 2020/21 the full amount is limited to 20% relief.

What does all this mean? It means that Buy to let mortgages may be harder to get and that it will cost significantly more to purchase an investment property.
If you want further advice why not contact the office to arrange a complimentary consultation with one of our advisers.

Featured in Welsh Border Life July 2016