New tax year brings mortgage tax relief changes

New tax year brings mortgage tax relief changes
Buy-to-let investors aren’t showing signs of being easily deterred, despite the Government’s crackdown

The changes to mortgage tax relief came into effect recently which means buy-to-let investors can no longer offset all their mortgage interest against their profits. Furthermore, by 2020, none of the interest will be tax-deductible.

Currently, under the new law which came into effect on 6 April,  landlords can offset 75 per cent of their mortgage interest against profits, but this will be reduced by 25 per cent each year, until it reaches zero in 2020.

Fortunately, landlords have had adequate prior notice of the tax changes, after they were detailed in George Osborne’s 2015 budget, and the four-year phasing in process will help investors adapt to the changes.

Higher rate taxpayers will bear the brunt of the impact, although a significant number of landlords could move into that higher rate tax bracket over the next four years if their rental income increased, given the current strong rental market.

As I’ve touched upon previously, investors appear to have taken various steps in order to weather the changes, including forming limited companies and switching to commercial and semi-commercial property investment instead of residential.


Others are believed to be looking at adapting their property portfolio so they don’t take as much of a financial hit; for example, selling up London properties where tax-applicable profits tend to be higher, and investing in more cost-effective buy-to-lets elsewhere in Britain where rental yields are higher.

Ultimately, only time will tell how the changes will affect property investors, and how they will adapt their business models to ensure maximum profitability, but the market’s resilience to previous changes to buy-to-let, in particular the three per cent stamp duty hike last year, should instil confidence.

Buy-to-let investors aren’t showing signs of being easily deterred, despite the Government’s crackdown. With historically low interest rates, a broad offering of buy-to-let mortgages, a shortage of housing in the UK and a growing rental market, property is still seen as an attractive investment option.

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Latest Comments

warren
warren 26 Apr 2017

You're very welcome Mary! Glad you enjoyed them :)

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Mary Ward
Mary Ward 26 Apr 2017

Thank you for the wonderful ideas. First impressions can make or break a deal. It's sadly that many homeowners drop the kerb to create an off-street parking space.

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Tony Gimple
Tony Gimple 14 Apr 2017

I'm not at all surprised that so many landlords are still confused about what the tax changes really mean and how it will affect them. In particular, the blind rush to incorporation is leaving landlords...

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MH
MH 13 Apr 2017

You are right that the bank holidays are going to be spoiled in looking for the properties. But people who want to sell their property and looking for the better relocation, they can get benefits of this...

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bnellyb
bnellyb 08 Apr 2017

There will be an exodus of private landlords over the next 5 years as tax changes take effect, private landlords provide an important service to the rental market, why do housing associations and councils...

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Fred Cassman
Fred Cassman 07 Apr 2017

"Make it look like you are at home": often people forget this and share on facebook their location!

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jared townsend
jared townsend 05 Apr 2017

It'll be interesting to see how & if the Government's asset sale regarding mortgages helps

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SecomTech
SecomTech 04 Apr 2017

...and not one mention of the rules on PERMITTED DEVELOPMENT!!! Unless you have studied the plans you will not know...It's probable a high proportion would not need planning permission...BUILDING Control...

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Jonathan
Jonathan 03 Apr 2017

That's a very interesting study indeed. There is no doubt that new services and web apps such as Wonego.com in the UK or Roomster in the US will change the way people look for a flatmate, and that tenants...

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MBM Homelets
MBM Homelets 23 Mar 2017

Although this is a very positive step, there is little or no guarantee of the standard of workmanship employed by the tenants. We have had experience of a professionally decorated property being ' painted'...

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ajay
ajay 21 Mar 2017

How is the "robust evidence" looking now?

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NathanG
NathanG 20 Mar 2017

I've been watching the series so far and am completely baffled by the cases that were presented. Though, I don't think that we can protect ourselves from every scam possible - it will just make the scammers...

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