Common questions for Buy-to-Let Investors in the UK

UK Tax Reforms: Updated June 2016

• What are the tax reforms for BTL investors?
• Who is affected by the BTL tax changes?
• What are the tax reforms for BTL investors?
• What is the impact of the BTL tax changes?
• When do the BTL tax changes come into effect?
• What can I do to mitigate the impact of the BTL tax changes?

What are the tax reforms for BTL investors?

Mortgage interest relief is being restricted for buy-to-let landlords from 6 April 2017.

Currently, the interest only element of a mortgage payment is an allowable expense for landlords. The interest payment reduces the taxable profit much like any other allowable property expense.

From 6 April 2017 all rental profits for individuals are to be computed without including mortgage interest payments.   The relief for these payments will then only be allowed at the basic rate of tax of 20%.

These changes affect all finance costs, not just loan interest. Finance costs also include any payments that are equivalent to interest, any incidental costs of obtaining finance (such as fees and commissions), legal expenses for negotiating draft loan agreements and valuation fees required to provide security for a loan.

Who is affected by the BTL tax changes?

These new rules only apply to individuals with residential property and not to companies or furnished holiday lettings (FHL’s).

What is the impact of the BTL tax changes?

The consequences of these changes are threefold.

1. Higher rate taxpayers will see their tax relief on interest payments restricted to only 20%; this will mean that tax liabilities for these individuals will increase.
2. All landlords will see their profit before tax increase regardless of which tax bracket they fall into.
3. For the first time landlords total taxable income could be pushed into a higher tax band. This could result in a clawback of child benefit, tax free personal allowances could be restricted and the scope for making pension contributions may be reduced.

When do the BTL tax changes come into effect?

The changes will come into effect from April 2017.

What can I do to mitigate the impact of the BTL tax changes?

There is time to plan for the new interest relief restriction and find out how to restructure your tax affairs in the most efficient way, as long as action is undertaken sooner rather than later.

We would be very pleased to provide advice in this area or at the very least undertake tax projections to ascertain the likely increase in tax liabilities.