Tax Relief Cuts for Buy-to-Let Investors Enter Third Year

Buy-to-let landlords should now expect “another tightening of the tax rules”, reports leading accountants and business advisors French Duncan LLP.

Tax changes introduced by the summer 2015 Budget brought about discouragement to those considering investing in the buy-to-let market. Chancellor George Osborne then phased in a four-year revised treatment of tax relief, to ease the issue, which began in April 2017.

Stephen Oates, Tax Director at French Duncan LLP, has said: “April 2019 will see the start of the third year of the phasing process, which will mean that over the next year:

• Three quarters of any interest paid on BTL borrowing will be eligible for a 20% tax credit; and
• The balance of interest is deductible from rental income, meaning it is fully tax relievable.”

In order to simplify this information, Oates provided the following example of how this change in tax relief will impact landlords:

“If a higher rate taxpayer in England had rental income of £12,000 and interest on a BTL mortgage of £8,000, the investors’ net position is as follows:

“Potentially, the situation could be worse than the table suggests if, for example, the disappearance of the deduction for interest increases the investor’s gross income to the point that it trips over the £100,000 threshold, at which the personal allowance is phased out.

“Interest relief changes and poor short-term prospects for capital growth could result in sales by BTL investors picking up this year. There is another tax incentive to sell on the horizon, too – from April 2020, capital gains tax on residential property (at 18% and/or 28%) will have to be paid within 30 days of sale, whereas the current rules effectively give a minimum of nearly ten months’ grace.”

Property investors in Scotland will be hit even harder by this taxation. Scottish landlords face a 15% greater reduction in net income than those in England and Wales.