Landlords have to contend with some major changes to the way they are taxed, the most fundamental of these is the change to mortgage interest relief.

Currently, interest paid on a loan is deducted from rent as an expense.

From 6th April 2017 the way in which interest is relieved will not be as an allowable deduction from rent, but as a tax reducer restricted to the basic rate of tax. It will be phased in over a 4 year period from 6th April 2017 and be fully implemented by 2020.

Individual landlords will be able to claim tax tax relief at the basic rate from the income tax liability on the lower of:

Interest not deducted from rent (this is phased in at 25% per year, see below)

Profit from rent

Total income exceeding the personal allowance, but excluding dividend and savings income.

Timeline of implementing the new system:

Tax Year Restriction of costs % Amount at basic rate reduction
2017/18 75% 25%
2018/19 50% 50%
2019/20 25% 75%
2020/21 100%

 

 

Most basic rate taxpayer landlords will not be affected by the change, however, if your income is near the higher rate threshold, you may find by 2020/20 that you become a higher rate taxpayer simply because the profit from rent will take you into higher rate tax.

Those who are currently higher rate taxpayers will start to feel the pinch from 2017/18.

Wear & Tear Allowance abolished from April 2016.

The wear and tear allowance ceased from April 2016, it has been replaced by a repairs and renewals basis.

The initial cost of an item will not be allowed, however the subsequent replacement or repair will be an allowable deduction.

In the event the item is replaced any cash received for the old item must be deducted.

Stamp Duty Land Tax 3% Premium

From April 2016, a 3% premium will be charged on top of the standard rate of Stamp Duty Land Tax on residential property that isnt the main home, this applies to individuals and limited companies investing in residential property.

This is not aimed solely at landlords but anyone buying properety over that of their main home.

Note, this does not apply to commercial property.