This guide has been produced for information purposes only. As a mortgage broker, we're not able to offer tax advice, but we can refer you to our partners.

Keeping up with tax changes is no easy feat. We’ve outlined the latest buy-to-let tax updates so you know what’s changed and what to expect.

How Will the Changes to Buy-to-Let Tax Affect the Rental Property Market?

The Government have introduced new tax rules for landlords over the last few years. These changes may affect your buy-to-let portfolio and investment strategy, so it’s good to know what to expect and what relief you’re entitled to.

What Do the Changes to Buy-to-Let Mean for Landlords?

The tax changes affect those who intend to purchase, own or intend to sell a buy-to-let property.

In this guide, we explain all the recent and upcoming buy-to-let tax changes that all landlords need to be aware of.

BTL tax changes

What Buy-to-Let Tax Changes Do You Need to be Aware of?

Stamp Duty Holiday Ending

During the COVID-19 pandemic, the standard Stamp Duty Rate was suspended on all properties – including buy-to-lets – purchased for up to £250,000 on or before the 30/09/2021. The Stamp Duty holiday rates are now over and have now returned to what they were pre-pandemic. You can see the current Stamp Duty rates below.

Property Value Standard SDLT Rate in England & Northern Ireland SDLT Rate on Second Properties or Buy-to-Lets in England & Northern Ireland
£0 - £125,000 0% 3%
£125,001 - £250,000 2% 5%
£250,001 - £925,000 5% 8%
£925,001 - £1,500,000 10% 13%
From £1,500,000 12% 15%

Both the standard SDLT rate and the SDLT rate on second properties or buy-to-lets is payable on the purchase of additional properties, including buy-to-lets and second homes. You can find out more information in our guide: Stamp Duty on Second Homes.

Further considerations you may need to be aware of include:

Let to buyif you move out of your main residence, without selling it and buy another property, you’ll have to pay the 3% Stamp Duty surcharge. However, if you sell your original residence within 36 months of completing the purchase you’ll be eligible for a full refund of the additional Stamp Duty you paid. Learn more about claiming a refund in our guide Second Home Stamp Duty.

Granny annexes: if the house you buy has a “granny annexe” then it’s unlikely you’ll have to pay the extra 3% Stamp Duty. You’ll only be liable for the higher rate if the annexe:

  • Can be sold separately from the main house
  • Has its own entrance
  • Has its own water and electricity supplies
  • Is worth more than £40,000 by itself
  • Receives its own Council Tax bill

Replacement of Domestic Items Relief Takes Place of the Wear and Tear Allowance

Most landlords know you can deduct certain allowable expenses from your rental income to reduce the amount of Income Tax you pay. From 1 April 2016, the Replacement of Domestic Items Relief replaced the Wear and Tear Allowance (WTA) which allowed landlords of fully furnished properties to claim an annual tax deduction based on 10% of their rental income.

Under the Replacement of Domestic Items Relief, landlords are now only able to claim for the actual cost of replacing furnishings. This covers moveable furniture, such as televisions, carpets, curtains, fridges and crockery.  

Items such as fitted units, baths, kitchens and boilers are usually still classed as allowable expenses, so you shouldn’t be taxed on them - so long as you only replace them. If you want to deduct them as allowable costs, you can’t make improvements; they must be considered repairs.

Buy to Let Mortgage Interest Tax Relief Changes

In 2020, the UK government introduced a new change that saw tax credit on mortgage interest payments replace finance costs restriction.

Before 2017, you could deduct finance costs from your rental income, like mortgage interest. HMRC started phasing out the finance costs you could deduct in 2017 over a 4 year period, simultaneously introducing a new relief called “tax credit”.

Tax credits, which came into full effect from April 2020, mean that landlords can no longer deduct any of their mortgage interest from their rental income when calculating their taxable profit. Instead, landlords receive a 20% tax relief on mortgage interest payments.

For more information on how this tax credit system works, see our guide: Rental Income and Other Landlord Taxes.

Calculating These Buy-to-Let Tax Changes

The mortgage interest tax rules are now in full effect. To figure out how it affects the tax you pay and your profit, enter your annual rental income and annual mortgage interest into our worked example below.

This example assumes that you are a higher rate taxpayer who pays 40% tax.

* £ 
* £ 
  Previous Transitional Rate Transitional Rate Transitional Rate New
  2016-2017 2017-2018 2018-2019 2019-2020 2020 Onwards
Rental Income £15,000 £15,000 £15,000 £15,000 £15,000
Mortgage Interest £10,800 £10,800 £10,800 £10,800 £10,800
Reduction in Mortgage Interest Allowance 0%
Total Rental Income on which Tax is Paid £4,200 £6,900 £9,600 £12,300 £15,000
Tax at 40% £1,680 £2,760 £3,840 £4,920 £6,000
Allowable Tax Relief at Basic Rate (20% of the annual mortgage interest) £0 £540 £1,080 £1,620 £2,160
Total Tax Payable (Tax at 40% minus Tax Relief) £1,680 £2,200 £2,760 £3,300 £3,840
Profit £2,520 £1,980 £1,440 £900 £360

The Restriction of Private Residence Relief

When you sell your main residential property, you receive something called Private Residence Relief. Private Residence Relief means that you don’t have to pay Capital Gains Tax. You usually pay Capital Gains Tax upon the sale of a property that’s not your main residence, so landlords who sell buy-to-lets normally pay CGT.

As a landlord, you can claim Private Residence Relief for the period that you used the property you’re selling as your main residence, as well as the final 9 months that you own the property – this is regardless of whether you rented it out in those final 9 months. If you own a property for more than 9 months after you’ve moved out, you’ll pay CGT on the months not covered by PRR.

From April 2020, the relief period was reduced from 18 months to 9.

See our guide, Capital Gains Tax on UK Property, for more information on Capital Gains Tax.

The New Rule for Letting Relief

Letting Relief can greatly reduce the amount of Capital Gains Tax you pay when you sell a buy-to-let. You can make up to £40,000 in tax-free gains.

To qualify for Letting Relief currently, you must share an occupancy with your tenants.

Find out more in our guide: Capital Gains Tax on UK Property.

BTL tax changes

What Can I Do?

Tax laws are always changing, so don’t worry if you already own a buy-to-let property. At John Charcol, we’re offering all buy-to-let owners and property investors the opportunity to call us for a review of your situation. You can call our experts for free on 0330 433 2927.

Our advisers can assess your portfolio and help you decide whether:

Now Is the Right Time to Remortgage 

We can help you make sure you’re on the best rate possible to maximise your rental yield. Our experts can advise you on rates from across the market.

You Could Benefit from Becoming a Company 

Corporation Tax currently stands at 19% (2021 – 2022) and is due to stay at 19% for the tax year 2022 – 2023. It is then due to rise to 25% for the tax year beginning 2023. Our partners can look at your investment and see if you should consider converting to a company.

You’re Tax-Efficient 

We can work with your tax adviser, or recommend one, to review whether you’re making the most of your allowances.


Get in touch with our experts

Phone us

0330 433 2927

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