Some fundamental changes for landlords were announced in the 2015 Summer Budget.
They are not being applied immediately, but it pays to take some time now to plan ahead.
Changes to Mortgage Tax Relief for Buy-To-Let Landlords
What Is Changing?
In his 8 July 2015 Budget, the Chancellor announced that new rules are to be phased in restricting tax relief for
higher rate taxpayers who use loans to finance buy-to-let properties.
The relief restriction will be phased in from April 2017 over 4 years, reducing down to the basic rate (20%) by
The phasing during the 4-year transition is planned as follows;
2017/18 – The deduction from property income will be restricted to 75% of finance costs, with the remaining
25% being available as a basic rate tax reduction.
2018/19 – The deduction from property income will be restricted to 50% of finance costs, with the remaining
50% being available as a basic rate tax reduction.
2019/20 – The deduction from property income will be restricted to 25% of finance costs, with the remaining
75% being available as a basic rate tax reduction.
2020/21 – All financing costs incurred will be given as a basic rate tax reduction.
Who does it apply to?
The changes only apply to individuals. It will not apply where a property meets the criteria of a furnished
holiday letting and it will not apply to corporate landlords.
Why Is This Happening?
In the Chancellor’s words, it is designed to “level the playing field” between buy-to-let landlords and ordinary
Homeowners lost Mortgage Interest Relief 15 years ago.
What Is The Effect?
The National Landlords Association (NLA) calculated for Telegraph Money that it could reduce typical yields
from 4.9pc to 4.3pc for 40 per cent tax payers.
What Can I Be Looking At Now To Mitigate This?
Interest Rates – There is a strong indication that interest rates will rise in the latter part of 2015. Factor this in
when looking at what is a sustainable level of borrowing for you.
Manage Risk – Look carefully at your projections for income and profit and work out what is acceptable as a
Repairs – There is a balance to be struck between essential repairs and ‘nice to have’ refurbishments that
could boost rental income. Get the balance right to maximise rental income, without tipping over the edge.
Increase Rents – Many commentators think this is an inevitable consequence, but it is not a given. It is
important to keep close to the market to remain competitive.
Remortgaging – A decision to remortgage now could mitigate rising borrowing costs and provide a method of
counterbalancing any shortfalls created by the tax changes.
Spouse’s Personal Allowance – Personal tax allowances rise to £11,000 in 2016
and the intention is for the allowance to £12,500 by 2020. You may have the opportunity to pass across rental income to a spouse, if they
are not working, to exploit their personal tax allowance.
Incorporate – Corporation Tax is to be reduced from 20% to 19% in 2017 and 18% in 2020. You could consider
investing via a company and take advantage of these changes.
Wear and Tear Allowance to be replaced
From April 2016 the Wear and Tear Allowance is to be replaced. Landlords have to date been able to write off
10% of rental profits for notional wear and tear, even if there had been no actual expenditure in that year.
This is to be replaced by a system that only allows tax relief on costs actually incurred when replacing
The new system will, however, apply to all landlords of residential dwelling houses, no matter what the level of
furnishing. HM Revenue and Customs have published a consultation document on the proposed reforms.
How can Wilkins Kennedy help you create opportunity from the changes?
Wilkins Kennedy has considerable experience in supporting landlords and has accumulated extensive local
If you would like help in working out the best route for you, contact your local Wilkins Kennedy partner or
This factsheet is designed for the information of readers. Whilst every effort has been made to ensure accuracy, information contained in this publication
may not be comprehensive and recipients should not act upon it without seeking professional advice.