September 8th, 2015
In the summer budget George Osborne announced that tax relief on buy to let mortgage interest would gradually be reduced to 20%.
Starting from April 2017, Britain’s two million buy to let landlords will no longer be able to claim tax relief worth 40% or 45% of the interest payments on their buy to let mortgages.
However, this relief will not be completely restricted to the basic rate of 20% until the tax year of 2020-21. For the next 2 tax years – until the 2017-18 tax year – landlords can still get relief on the amount they pay tax on, by offsetting all finance costs from their rental income.
If you are a landlord and file a self-assessment tax return online, the new tax liability will be calculated for you automatically. If you fill in a paper tax return, there will be a calculator available to help you.
It is expected to have the largest effect on landlords with a mortgage that pay 40% or 45% tax rate, and basic rate tax payers that may be pushed into a higher rate bracket.
To summarise, tax will apply to the incoming rent– instead of the difference between the rent and the mortgage interest. This has caused concerns among landlords especially with the possibility of future interest rate rises.
However a petition to reverse the planned changes has surpassed 21,000 signatures.
Many landlords believe that they have been targeted unfairly and argue that the change may force them to sell many of their properties (and evict tenants).
The petition states: “We operate as sole traders and incur costs in the course of running our business. The planned restriction will unfairly target us by preventing us from offsetting costs in the same manner as other sole traders. We ask that the planned restriction be reconsidered as it has unfair implications.”
To be considered for discussion in parliament the petition will need 100,000 signatures.
The Government responded by saying that only 18% of landlords can expect to pay more as a result of the changes.
A spokesperson said: “The Government is committed to a fair tax system so is restricting tax relief landlords can claim on property finance costs to the basic rate of income tax.”
The Government emphasises that the current relief is not available for other assets such as shares but then goes on to say: “The Government is reducing the distortion between property investment and investment in other assets, and reducing the advantage landlords may have in the property market over ordinary homebuyers.”
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Article By: Bradley George, Senior Mortgage Consultant at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager
Tel: 01489 555 080