New Taxation rules on Buy-To-Let set to bite

rising house costs

Data from the Nationwide Building Society in November showed that the buy-to-let boom may be tailing off. Their figures show that they lent £2.8bn in the six months to September 2016, down from £2.9bn in the same period a year earlier.

From April 2017, landlords could find themselves paying tax at higher rates as a result of the new tax changes.

THE NEW TAXATION RULES

Currently, those with buy-to-let mortgages can deduct all finance costs (such as mortgage interest, interest on loans taken out to furnish the property, and fees) in arriving at their net rental income. From April this will no longer apply. Instead they will receive a basic rate reduction from their income tax liability for their finance costs.

However, the new rules won’t be fully implemented until 2020 as the relief will be gradually tapered down. For example, in tax year 2017–18 the deduction from property income will be restricted to 75% of finance costs, with the remaining being available as a basic-rate reduction.

In addition, the 10% wear-and-tear allowance will go from April, and landlords will only be able to deduct costs they have actually incurred. More negative newsflow for landlords came in the Autumn Statement, by way of a ban on letting agent fees charged to tenants, passing the entire fee burden on to landlords, to be imposed following consultation.

AFFORDABILITY TESTS

The government is keen to level the playing field for first-time buyers, many of whom find they are competing with buy-to-let landlords for entry-level properties. The introduction of higher rates of stamp duty for second properties was the first step designed to stem the flow of landlords entering the market.

In line with the government’s policy on the buy-to-let market, many lenders are now introducing new affordability tests for those looking to take out a buy-to-let mortgage. The introduction of these new rules together with the changes to tax relief may make it less likely that landlords will snap up properties.

In the light of these moves, some landlords will consider putting their rent up at the earliest opportunity, while others may leave the market altogether.


A mortgage is a loan secured against your property. Your property may be repossessed if you do not keep up the repayments on your mortgage or any other debt secured on it.