Skip to main content

From 2017/18, buy-to-let landlords should expect to see a phasing out of mortgage interest relief and the introduction of a basic rate from 2020/21. This change will see landlords being taxed at a higher rate for any rental profits, due to mortgage interest no longer being allowed as a deduction.

The phasing out of the mortgage interest relief will push many landlords into selling their properties as they face a rise in tax of over 100% in some cases, those with larger property empires will suffer the most as their income will barely cover their tax costs and there is still the fear of further rises in the future.

Ajay Ahuja, a landlord with over 200 properties, is concerned that these changes could see him paying £1.20 in tax for every £1 he earns on rental profit and is having to minimise his portfolio to tackle the issue.

Stamp Duty is also having an effect on buy-to-let landlords, as it was increased by 3% on buy-to-let homes up to £125,000 and steadily going up throughout each tax band, ensuring that such purchases were not lucrative to those involved and therefore being avoided by potential investors.

Many landlords may consider adapting to the changes and creating limited companies to shield their portfolios from the woes of the increased tax on their incomes – it is believed that a third of buy-to-let mortgages are now going to companies, a significant amount compared to the 15% that did last October. However, if they do not choose this option they will either sell up or stick it out and avoid buying more properties in the near future, simply because they are not considered profitable.

Due to these changes, there is the risk that rents will go up throughout the country, as those landlords hit hard will attempt to improve their situation by asking for more money from their tenants.

However, the changes have been welcomed by first time buyers and tenant campaigners, who are struggling to find properties to suit their needs in certain areas, as many are snapped up by buy-to-let investors and rented out to tenants.

It’s no secret that these alterations to the buy-to-let interest relief have hit landlords hard but with some forward thinking and perhaps some sacrifices when it comes to the amount of properties under their wing they can be ridden out.

Figures UK: Accountants Peterborough - Team: JCJason Cannon
Managing Director and Figures UK Founder

No matter the size of your business, whether you’re a sole trader or a Limited company, when it comes to accounting, it can be a little confusing to say the least.
That’s where we come in. We’re on hand to listen, advise and provide our expert support.

You can find lots more useful information in our blogs below or get in contact with us.

Accounting For You, By Us