The way landlords can claim tax relief on their mortgage finance costs has changed.
Up until 5 April 2017, landlords could deduct mortgage interest from their rental income before calculating how much tax they should pay. Now, however, tax relief on Buy to Let mortgage interest will gradually be reduced. The restrictions will be phased in over the next three years, resulting in tax relief only being available at the basic rate of income tax (currently 20%) from April 2020.
Wear and Tear allowance has changed
Landlords of only fully-furnished residential properties used to be able to claim tax relief for wear and tear on furnishings. This changed in April 2016, when the ‘Wear and Tear’ Allowance was replaced with a relief that enables all landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings in the property, such as:
• fridges and freezers
• carpets and floor-coverings
• crockery or cutlery
• beds and other furniture
The initial purchase of furniture, furnishings, appliances and kitchenware is not eligible for the tax relief.
How will the changes impact you?
The tax relief changes can seem complicated, so it’s important to take the right steps now, so that you know if and how you are affected and what you need to do to minimise the impact:
• Seek advice from a qualified tax adviser on how the new rules will affect your taxable income
• Discuss your portfolio and the best way to structure it with a qualified tax adviser
• Speak to us and we can explore whether your financial plan needs to change to accommodate any potential loss of profit from the Buy to Let changes.
This article is for information purposes only and does not constitute tax advice. It’s best to seek advice from a tax expert on how the rules will affect your taxable income. Tax information is based on our understanding of the proposed tax legislation and may be subject to change.
Some Buy to Let mortgages are not regulated by the Financial Conduct Authority.
Your property may be repossessed if you do not keep up repayments on your mortgage.
To talk about mortgage options for your Buy to Let investments get in touch.