Landlord Tax Relief Changes: Explained

In 2015, the former Chancellor George Osborne announced a number of changes to the rental sector that would limit the tax relief available on buy-to-let property. These changes included:

  • The abolishment of landlords' wear and tear allowance. 
  • The phased reduction of tax relief on buy-to-let mortgage interest. 

These changes are now in place, with the latter taking effect earlier this year. Previously, landlords could deduct both mortgage interest and other allowable costs associated with letting a property from their rental income, before calculating how much tax was due. Offsetting mortgage interest against income tax was a significant benefit for buy-to-let landlords. 

However from the 6th April 2017, landlords saw this benefit cut considerably by up to 25%. Incremental reductions are due to continue each year up to 2020, when the tax relief will be replaced by a universal 20% tax credit. Specific details can be found here: www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords

Recent surveys* have shown that landlords in the UK want the Government to reverse these changes, with more landlords than before now understanding the implications. Although the universal 20% tax credit will help to alleviate the initial financial ramifications, it is estimated 20% of landlords aim to increase their rent to combat these changes and 18% plan to repay some or all of their mortgage. 

*latest PRS trends report from Paragon Mortgages. 

Despite these recent developments, landlords have a number of reasons to maintain a positive outlook on the future of the region's rental market. It remains incredibly buoyant, particularly during the summer months and buy-to-let property continues to offer strong and healthy yields compared to other investment opportunities. 

Are you a landlord with questions about these changes? Do you have a property you're looking to market with a leading, local agent? Get in touch to discuss, call us in the office on 0114 275 8333 or send us an email - info@cactusliving.co.uk.

Last Updated: 17/08/2017
Author: Cactus Living

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