Buy-to-let investors can expect another tightening of the tax rules in April

Stephen Oates | 21 March 2019

Buy-to-let investors can expect another tightening of the tax rules in April

The summer 2015 Budget resulted in a variety of tax changes aimed at discouraging buy-to-let (BTL) investment, coming as a surprise to many. In an attempt to ease the impact, the Chancellor then phased in the most significant reform, a revised treatment of interest relief, over four years and deferred its start date to April 2017. Anecdotal evidence suggests some BTL investors did not know what had happened until they received a tax bill in January that was larger than expected.

April 2019 will see the start of the third year of the phasing process, which will mean that over the next year:

  • Three quarters of any interest paid on BTL borrowing will be eligible for a 20% tax credit; and
  • The balance of interest is deductible from rental income, meaning it is fully tax relievable.

If that all looks complicated, the impact becomes clearer when you look at a simplified example. For instance, if a higher rate taxpayer in England had rental income of £12,000 and interest on a BTL mortgage of £8,000, the investors’ net income position is as follows:

Potentially, the situation could be worse than the table suggests if, for example, the disappearance of the deduction for interest increases the investor’s gross income to the point that it trips over the £100,000 threshold, at which the personal allowance is phased out.

Interest relief changes and poor short-term prospects for capital growth could result in sales by BTL investors picking up this year. There is another tax incentive to sell on the horizon, too - from April 2020, capital gains tax on residential property (at 18% and/or 28%) will have to be paid within 30 days of sale, whereas the current rules effectively give a minimum of nearly ten months’ grace.

If you are a BTL investor thinking about your options, please get in touch.

Click here to see Stephen's profile and contact details.




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