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Tax changes for landlords explained

In the summer it was announced that there will be some tax changes for landlords who fall in to the higher tax rate bracket. Specifically changes in the amount of tax relief they can claim on the interest of their mortgage payments. These tax changes for landlords were not favorable and mean that relief can only be claimed at the basic rate of tax, currently 20%.

Landlord Tax ImageAs a landlord you are considered to be a self-employed business and currently you are able to claim tax relief and deduct some of your running costs from your taxable profit. It can also allow you to be repaid through your personal pension or by other means.

The new rules put in place by this Conservative government means that landlords will no longer be allowed to deduct the cost of their mortgage interest as a taxable expense.

NOW: As an example, if you earn £10,000 per year in rental from one of your properties and the interest-only mortgage costs £6,500 per year, you will pay tax of the profit of £3,500. As a higher rate tax payer: This means you’re required to pay £1,400 per tax year.

In 2020: The full rental income of £10,000 will be taxable as a higher rate tax payer. So after taking away the new basic-rate relief of 20% on your interest-only mortgage payment of £6,500 you will be required to pay 93% increase of £2,700 per year.

The higher rate structure will be phased in over the next 4 years allowing landlords the time to prepare for the changes, and nothing will start to happen until April 2017. It is widely advised that landlords currently investing or expanding their portfolio to discuss their options with an independent mortgage adviser to better prepare themselves for the change and avoid having to hike rental prices.

Contact the Buy to Let mortgage experts at Number One Mortgages and obtain professional advice for your Buy To Let Mortgages 

Call us today on 01273 736536

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