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Buy-to-Let Properties
Changes in Tax Legislation
The amount of Income Tax Relief some landlords can get on residential property costs was restricted to the basic rate of tax from tax year 2017-18.
Who is affected?
- UK resident individuals that lets residential properties in the UK or overseas
- Non-UK resident individuals that lets residential properties in the UK
- Individuals who let such property in partnership
- Trustee or beneficiary of trusts liable to Income Tax on the property profits
You won't be affected if you are:
- UK resident company
- Non-UK resident companies
- Landlord of Furnished Holiday Lettings
What finance costs are restricted?
- Interest on Mortgages
- Interest on loans - including loans to buy furnishings
- Interest on overdrafts
- Interest on alternative finance returns
- Fees and other incidental costs for getting or repaying mortgages and loans
- Discounts, premiums and disguised interest
Phasing in the restriction
| Tax Year | Interest on Tax Return | |
|---|---|---|
| Allowed | Disallowed | |
| 2017-18 | 75% | 25% |
| 2018-19 | 50% | 50% |
| 2019-20 | 25% | 75% |
| 2020-21 | 0% | 100% |
What relief is given on the disallowed interest?
Relief is given on the disallowed interest at the current basic rate of tax (20%)
| 2016-17 | 2017-18 | 2018-19 | 2019-20 | 2020-21* | |
|---|---|---|---|---|---|
| Rental Income | £200,000 | £200,000 | £200,000 | £200,000 | £200,000 |
| Less | |||||
| Interest | £120,000 | £120,000 | £120,000 | £120,000 | £120,000 |
| Other costs | £40,000 | £40,000 | £40,000 | £40,000 | £40,000 |
| Profit | £40,000 | £40,000 | £40,000 | £40,000 | £40,000 |
| Disallowed Interest | £0 | £30,000 | £60,000 | £90,000 | £120,000 |
| Taxable Profit | £40,000 | £70,000 | £100,000 | £130,000 | £160,000 |
| Tax Payable | |||||
| Personal allowance | £0 | £0 | £0 | £0 | £0 |
| 20% band | £5,800 | £6,700 | £6,900 | £7,500 | £7,500 |
| 40% band | £0 | £10,000 | £21,460 | £32,000 | £40,000 |
| Loss of Personal allowance | £0 | £0 | £0 | £5,000 | £5,000 |
| 45% band | £0 | £0 | £0 | £0 | £4,500 |
| Gross Tax | £5,800 | £16,700 | £28,360 | £44,500 | £57,000 |
| 20% Relief on Disallowed Interest | £0 | £6,000 | £12,000 | £18,000 | £24,000 |
| Net Tax | £5,800 | £10,700 | £16,360 | £26,500 | £33,000 |
| Class 4 NI | |||||
| Between LPL and UPL (9%) | £2,874 | £3,315 | £3,413 | £3,723 | £3,723 |
| Above UPL (2%) | £0 | £500 | £1,073 | £1,600 | £2,200 |
| Total NI | £2,874 | £3,815 | £4,486 | £5,323 | £5,923 |
| Total Tax & NI | £8,674 | £14,515 | £20,846 | £31,823 | £38,923 |
| Net Income | £31,326 | £25,485 | £19,154 | £8,177 | £1,077 |
Note
* Tax year 2020-21 has been calculated at the 2019-20 tax rates.
It is important you act before your tax liability reaches £38,923 leaving you with income of only £1,077 per annum.
Click Here 
to download the current tax year's abacus Tax Tables pdf booklet
Click Here to download the previous tax year's abacus Tax Tables pdf booklet
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