Amount of tax relief claimed by landlords to be reduced

Amount of tax relief claimed by landlords to be reduced

In the first all-Conservative budget since 1997, the Chancellor, George Osborne, announced that the amount of tax relief that buy-to-let landlords can claim on the interest of their mortgage payments will be reduced.

Whilst only for higher-rate tax payers, the changes mean that property investors who currently claim top rates of tax relief of 40% and 45% will only be able to claim relief in the future at the basic rate of tax, currently 20%.

How will the tax changes be implemented? 

The withdrawal of the higher-rate reliefs will be phased in over a period of four years, in order to help landlords adjust to the lower relief level, and nothing will happen until April 2017. It will then be implemented in four stages:

Stage one
From April 6th 2017, the higher-rate tax relief can still be claimed on the first 75% of your mortgage interest costs. The remaining 25% will have the basic rate of tax relief applied.

Stage two
From April 6th 2018, the amount of tax relief you can claim at the higher rates will drop to 50% of your mortgage interest costs. The remaining 50% will have the basic rate of tax relief applied.

Stage three
From April 6th 2018, the higher-rate tax relief can only be applied to 25% of your mortgage interest costs. The remaining 75% will be at the basic rate.

Stage four
From April 6th 2020, you will only be able to claim tax relief at the basic rate level.

If you have any furnished holiday lets, this restriction will not apply.

These changes will be published and are expected to be passed in the 2015 Summer Finance Bill.

How can you assess the impact these changes will have on you? 
The changes won’t take full effect until April 6th 2020, in five years’ time. This gives time to forward-plan so that landlords do not have to suddenly increase rents.

For any landlords currently investing in property, or considering expanding their portfolio, it is wise to speak to an independent mortgage adviser to discuss these changes.

They should be able to help you understand how the changes will affect your finances and review your current mortgage deals to see if it is possible to re-mortgage and reduce the impact of losing the tax relief.

It is also worth talking to a property tax expert to see if there are any other tax breaks you could take advantage of.