Buy-to-let: a taxing issue


April will mark the start of another measure designed to increase tax for buy-to-let investors.

Buy-to-let (BTL) investors are about to experience the start of a third adverse tax change in April. Last year saw an increase in stamp duty across all of the UK and the end of 10% wear and tear allowance, both of which have already started to alter the economics of BTL investment.

From 6 April 2017, only three quarters of interest on any BTL mortgage can be set against rent for tax purposes, with a 20% tax credit given for the remaining quarter. By 2020/21 there will be no offset and in its place will be a 20% tax credit for all interest paid, equivalent to basic rate relief.

If you are a higher or additional rate taxpayer, this will mean a drop in net income. A typical example based on rental income of £10,000 and interest of £6,000 paid by a higher rate taxpayer is shown below. 




Rental income 10,000 10,000
Interest paid and offsetable (6,000) -
Taxable income 4,000 10,000
Tax @ 40% (1,600) (4,000)
Interest paid not offsetable - (6,000)
Interest tax credit @ 20% - 1,200
Net Income 2,400 1,200

The fact that by 2020/21 your full rental income (less expenses) will be taxable means an increase in your total taxable income. This could mean you cross an income threshold, triggering extra tax, or you are pushed into a different tax band.

And before you think “I’ll sell up”, remember that there was no cut in the capital gains tax (CGT) rates for residential property: they stay at 18% within the basic rate band and 28% above. Worse still, from April 2019, CGT on residential property will be payable within 30 days of sale.

All these tax changes have significantly reduced the appeal of BTL for many, even before you consider the possibility that interest rates could start rising in the future.


The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it. Think carefully before securing other debts against your home. Business buy to let and commercial mortgages are not regulated by the FCA. Think carefully before securing other debts against your home.



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The information in this article does not constitute advice and should be used for informational purposes only. This content has been provided to Helm Godfrey by Taxbriefs.