03 04 2017

UK Buy-To-Let Landlords Face Higher Tax Bills From April

The Chartered Institute of Taxation has issued a reminder to landlords that UK tax reliefs will begin to be reined in from April.

From April, tax relief for mortgage interest payments will be limited to the basic rate of income tax (20 percent). According to CIOT, the change means that finance costs such as mortgage interest will no longer be able to be deducted in full to work out taxable property profits. All individual residential landlords with finance costs will be affected, it said.

The organization explained that the restriction works by disallowing finance costs in calculating the taxable rental profit, and then introducing a tax credit equal to 20 percent of the disallowed costs. The measure is part of wider changes being phased in over four tax years.

"Taxpayers may have to decide whether to continue in buy-to-lets with reduced profits or simply sell their properties, which may impact on the number of houses and flats available to buy," said Brian Slater, Chair of CIOT's Property Taxes Sub-Committee. "This is one of the most significant changes to the buy-to-let market in decades and will particularly affect heavily geared buy-to-let landlords."

He added that the restrictions apply to individual landlords and not to companies, which will continue to receive relief for mortgage interest and other finance costs in the usual way.