Changes to buy-to-let property tax relief

Whether you are seasoned landlord or you’re thinking about investing in your first buy-to-let property, the Lettings team at Whatley Lane Estate Agents recommend that you consider your position carefully.  We also make you aware of recent changes to the buy-to-let property tax changes that may affect your property income.

Since April 2017, HMRC has been gradually restricting the amount of Income Tax Relief landlords can get on residential property finance to the basic rate of tax.

You will have be affected by the changes to buy-let-property taxes if you’re a:

  • UK resident individual that lets residential properties in the UK or overseas
  • non-UK resident individual that lets residential properties in the UK
  • individual who let such properties in partnership
  • trustee or beneficiary of trusts liable for Income Tax on the property profits.

The restricted finance costs include interest on:

  • mortgages
  • loans – including loans to buy furnishings
  • overdrafts

The tax changes do not apply to:

  • UK resident companies
  • non-UK resident companies
  • landlords of Furnished Holiday Lettings

Is it worth setting up a company to manage your buy-to-let properties?  

One solution could be to transfer your properties to a new company.  However, this can crystallise Capital Gains Tax (CGT) and Stamp Duty (SDLT) liabilities.  Depending on your own individual circumstances, it may be possible to reduce (or even eliminate) these tax liabilities but careful planning is needed beforehand.

Whilst achieving full tax relief on loan interest and paying Corporation Tax on net rents at 19% is attractive, please remember that if you want access to the profit in the company, additional tax will also be payable personally.  Also, running a company is administratively burdensome and you will also need to consider the logistics of moving the borrowings.

For more information or guidance on letting a property in the UK, please contact our lettings team on 01638 561187 & 01284 765 256