Chancellor hits landlords for billions! How will this affect your cashflow?

by Mark Alexander

3 years ago

Chancellor hits landlords for billions! How will this affect your cashflow?

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Chancellor hits landlords for billions! How will this affect your cashflow?

Chancellor hits landlords for billions

How much worse off might you be as a result of the limitations on claiming BTL mortgage interest as a taxable expense?

We’ve built a calculator to help you work it out.

First of all, allow me to explain the issue ….

Tax relief on Buy-to-Let mortgages is to be reduced to the basic rate of tax phased in over four years commencing 2017.

The Bank of England recently reported that Buy-to-Let mortgage balances amounted to circa £200 billion.

Assuming an average interest rate of just 3% that equates to interest of £6 billion a year.

Given that most landlords are likely to be 40% tax payers (or soon will be!) the loss of 20% tax relief for 40% tax payers means that landlords are likely to be around £1.2 billion a year worse off as a result of the Summer 2015 budget.

How much worse off will you be?

Step 1 of 2

  • If you are a 40% tax payer this is how much extra tax you might have to pay. This is not a comprehensive analysis because you may pay some tax at the lower 20% rate and some may even fall into a higher rate bracket.

    Need some help?

    Before you consider selling up or moving properties into Limited Company structure you need to carefully consider the ramifications of Capital Gains Tax and other tax planning and money saving opportunities available to you. To learn more please click the NEXT button below


Neil Patterson

3 years ago

The phasing in of the increase is detailed below:

- in 2017-18 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction.

- in 2018-19, 50% finance costs deduction and 50% given as a basic rate tax reduction.

- in 2019-20, 25% finance costs deduction and 75% given as a basic rate tax reductions.

- from 2020-21 all financing costs incurred by a landlord will be given as a basic rate tax reduction.

Mervin SX

3 years ago


Please look into my commnet on page 9 of this topic - Summer Budget 2015 – Landlords Reactions.

Most landlords are NOT likely to be 40% tax payers! 20%, 40% or 45% tax payer status should be determined before taking any 'property income' into consideration. According to HMRC documentation, this change will only apply to 1 in 5 landlords...

It affects me and I am disappointed. But it's not a large scale strike on landlords across the country.

Neil Patterson

3 years ago

OBR (Office for Budget Responsibility) figures suggest that the Treasury will gain £665million per annum in extra tax revenue by 2020/2021 tax year

G Cox

3 years ago

This is a complicated matter to work out.

The best way to do it may be to calculate your taxable income as you do now. Then add back the interest payments that have deducted. Check whether the resultant sum exceeds the high rate threshold of future years. You suffer extra tax of 20% on 100% of the amount by which it exceeds by 20/21(25% in 16/17).

Then of course there is the disappearance of the 10% for those with quality contents.

Alan Loughlin

3 years ago

this could be very much a north south thing, will not be losing any sleep over it.

Reply to the comment left by "Mervin SX" at "09/07/2015 - 00:52":

Hi Mervin

Thanks for the comment you refer to above, which can be found by clicking on this link:

and thanks for your link to the HMRC statement which preceeds it.

David Price

3 years ago

Reply to the comment left by "Neil Patterson" at "09/07/2015 - 09:00":

and inevitably tenants will have to pay that much extra in rent.

Hi, there is a useful example on the Mortgages for business site.

Lets not get too worked up...... it is still just at the white paper stage is it not.....? There will be some refinement over the next few months. The driver is surely to try and "damp down" the continued expansion of the PRS and further level the playing field to encourage more institutional engagement?

Dwayne Creighton

3 years ago

Forgive me for being thick but I'm struggling to understand exactly what this means. We are allowed to deduct 100% of mortgage interest from rental profits as it stands so does this now mean that we will now no longer get the 100% deduction from rental profits as an expense and thus incurring a tax liability on the amount of interest that we are now no longer allowed to deduct? Does this only apply to landlords in the higher rate tax bracket or all rates?

Jay James

3 years ago

Q1a. No.
Q1b. No.
Q2. Only higher rate tax payers.

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