Category: Investment

Tax Changes Every Landlord Needs to Know About (April 2017)

Mortgage interest relief that buy-to-let landlords were previously exempt from is now no more, following the changes in tax law that came into effect on April 6.

Before the change to legislation, landlords could claim tax relief to their mortgage interest payments which, in basic terms, meant that you could offset the cost of the buy-to-let mortgage interest from the rental income when totalling profits. If a landlord collects £25,000 a year in rental income, but pays a mortgage interest of £23,000, the profit would be £2,000.

So what’s changed?

The new rules, which will be phased in over the next 4 years, means that you can no longer deduct all of your mortgage interest off how much rental income you get. By 2020, the maximum amount you can deduct will be 20%.

For a small 1 or 2 property investor, the change may not make a significant difference, but a large investor landlord is likely to notice a big difference, so seeking the best advice and making sure you are on the best possible mortgage deal is a must.

If you’re an investor landlord, you’re likely to be in the higher taxpayer rate bracket and this is where the change will be felt the most. Those landlords in this bracket will likely see their profits greatly reduce. So, as an example, if you had a £150,000 buy-to-let mortgage on a property worth £200,000, with a monthly rent of £800, this would currently have a net profit of around £2,160 a year. Under the new system, the net profit would drop to £960.

What should landlords do?

  • Perhaps it’s worth considering looking at re-mortgaging to see if a better deal can be sought to mitigate the change in the tax system.
  • You could place your property portfolio in a limited company structure. You would then pay corporation tax (which is lower) rather than income tax on your profits. A drawback is that your mortgage options will narrow, as fewer providers will lend to a company.
  • The most important step to take now is to seek advice from an accountant or financial adviser. They can ensure you are fully up to speed with what your tax obligations are and help you budget accordingly.

If you are a landlord and would like more advice, please contact our team on 0191 284 7171 or

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