If you currently own a buy to let property you’ll know that the income you receive as rent is taxable. You need to declare any rent you receive as part of your Self-Assessment tax return.
The tax on your income is then charged in accordance with your income tax banding 20% for basic rate taxpayers, 40% for higher rate, and 45% for additional rate.Under the current rules you can reduce the tax you have to pay by deducting certain ‘allowable expenses’ from your taxable rental income. Allowable expenses include, mortgage interest, mortgage fees and interest on loans used to furnish a property.
The changes announced in 2015 will gradually restrict the tax relief all landlords receive to the basic rate of 20% and from April 2020, landlords will no longer be able to deduct the cost of their mortgage interest from their rental income when calculating their taxable profit.
The rules are being phased in over 4 years commencing April 2017. Under the new measures the tax relief landlords receive at the basic rate of 20% will gradually decrease. After that date landlords and individuals with a buy to let property portfolio will no longer be able to deduct the cost of their mortgage interest from their rental income when calculating their taxable profit.