This change will only affect higher-rate tax payers which will mean that buy-to-let landlords who currently claim tax relief at the top rate of 40% will in the future only be able to claim relief at the basic rate of income tax, currently at 20%. We should also point out that this change does not affect landlords of furnished holiday lettings.
It’s not all bad news though. The good news is that the government has given buy-to-let landlords until 6 April 2020 to adjust to this change. A phased implementation has been set-out beginning in April 2017 and will be rolled out over a four-year period. Until April 2017, nothing will happen.
Key stages of implementation for change to buy-to-let tax relief
Stage One From 6 April 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 6 April 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 6 April 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 6 April 2020, you will only be able to claim tax relief at the basic rate level.
Buy-to-let landlords should plan ahead
With the changes not due to take effect until April 2017 when it will be phased in, we would advise property investors and buy-to-let landlords to forward plan.
Our property tax expert, Adrian Crank can help you assess the impact these changes will have on you and tax planning opportunities to minimise your tax exposure. We would also be happy to advise mortgage advisers and letting agents with buy-to-let portfolios.
If you would like to arrange a meeting with Adrian, call Hall Livesey Brown’s Tarporley office on 01829 733333.