A Guide To The Changes In Buy To Let Mortgages

Last year, Chancellor of the Exchequer George Osborne announced a raft of new tax measures for the buy to let market, some of which specifically affecting buy to let mortgages. However, as the changes won’t actually start coming into effect until April 2017, you have time to adapt to them. Whether you currently have or are considering taking out a buy to let mortgage, here are the crucial changes to take account of.

There will be new tax relief rules

If you have a buy to let mortgage and will be keeping the property beyond April 2017, then consider that tax relief changes will be gradually phased in from that point on. The amount of tax relief that is claimable on mortgage interest will be capped at the 20% basic rate.

Right now, tax relief can be claimed at the marginal rate. Remember that your marginal rate concerns how much Income Tax you pay on the next £1 you earn. As the tax relief currently available to higher rate taxpayers is 40%, the tax relief changes will see the relief halved for this particular category of taxpayers.

How exactly will these tax relief changes be phased in?

You have a lot of time to prepare for these changes, not least because they won’t commence until April 2017, at the start of the 2017/18 tax year. Then, the deduction from property income, as is currently permitted, will be limited to 75% of finance costs, leaving the other 25% available as a basic rate tax reduction.

From April 2018, these figures will shift to 50% each for the finance costs reduction and basic tax reduction, before April 2019 sees a change to 25% finance costs deduction and 75% basic rate tax reduction. From April 2020, all finance costs will be provided as a basic rate tax reduction, therefore fully enacting the planned tax relief changes.

How you calculate your income will also change

The new restrictions on tax relief will be accompanied by changes to the way your taxable income is calculated. Basically, it will no longer be possible for you to deduct however much you spend on mortgage interest from your rental income. This means that your taxable income will effectively rise.

An increase in your total taxable income could significantly affect you. As a higher rate taxpayer and, therefore, the kind of individual that, at Enness Private Clients, we tailor our services to, you could find that the increase pushes you into an even higher tax rate band.

We can help you to prepare for the changes

In preparation for these changes, you should make sure that any buy to let mortgage you will have when the 2017/18 tax year arrives is as competitive as possible. At Enness Private Clients, we can source a range of rates for you to choose from – whether you want to take out a buy to let mortgage for the first time or remortgage your existing buy to let property with a view to maximising your returns in the future.