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bigduckontax, Accountant
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How will changes to buy to let tax relief effect me

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how will changes to buy to let tax relief effect me
Hello, I am Keith, one of the experts on Just Answer, an leased to be able to help you with your question. The Chancellor, in basic terms, limited and mortgage interest paid on a buy to let mortgage to the basic rate of tax only [ie 20%]. Furthermore, the 10% or rental income which could be utilised as 'wear and tear' expenditure is withdrawn in favour of actual expenditure. The Guardian notes that: 'In a £2bn tax bombshell, from April 2017 landlords will no longer be able to claim tax reliefs worth 40% or 45% of the interest payments on their buy-to-let mortgages. Instead, the maximum tax relief will be set at 20%, although the change will be introduced over a four-year period. In a second raid on landlord tax breaks, property investors will also lose the right to automatically claim 10% of the rent against wear-and-tear costs. From April 2016, landlords will only be able to deduct costs they actually incur.' The Telegraph gives an excellent summary here: and also indicates that mortgage arrangement fees, although allowable expenses in the first buy to let trading year will also be restricted to the basic rate of tax. How this affects you personally, depends upon your actual overall income level. I do hope my reply has been of assistance to you.
Customer: replied 2 years ago.

Hello - thank you for your reply, this is my first time using this service and I didn't realise my general question was going to you without me writing a followup. What I am trying to work out is the implication for me. My situation below is straight forward and I wondered if you could do a basic work through for me of the implication.

I am a house husband so have no income other than 1 buy to let property. (my wife pays for our living expenses etc)

I rent a house out that I own with a mortgage. The mortgage is £13 500 per month of which approximately £9000 is the interest element.

I rent my house out for £10 000 per month (after letting agents fees I get £8500 per month).

As you will see under the current system I make a loss as I can offset the £10 000 (or £8500 after letting agent fees) against the £9000 per month interest payment.

But what happens under the new rules (after the transition period). Will HMRC view me has having an income of £102 000 per year (£8500 x 12). if so I will suddenly go from paying no tax to being a high rate tax payer.

kind regards


Unfortunately Paul, yes. However all is not lost as you will still be able to offset your income with the 9K per month interest element, but only at 20% [ie 21.6K relief].

You would indeed suffer an increase and unless maintenance charges reduce your income below 100K then there is a danger you will begin to loose your personal allowance at a rate of a pound for every 2 pounds over the 100K.

Customer: replied 2 years ago.

Thank you. So if I understand you correctly I will still be able to knock off my letting agent fees and also my buildings insurance is about £2000 and there will probably be the odd thing (so I should just stay beneath 100k).

So if I have 100k income I can knock 20% off so in effect I am paying tax on £80 000 rather than the £100 000. So then I will be treated like anyone and pay income tax on an income of £80 000, less if I take off my personal allowance.

Also I presume I won't have to pay national insurance on that?

Thanks for explaining.


National Insurance is not levied on rental income, Paul.

It's not quite as simple as that, though. You will be taxed on the net rental ie rental less expenses. Then your tax will be assessed after allowing your personal allowance, available to any EEA citizen, but from that computation can be deducted the mortgage interest element at 20%.

Customer: replied 2 years ago.
Oh dear, so I won't be able to deduct the letting agent fees either. Not good news!

Oh yes you will, Paul; that's what I meant when I said 'net rental ie rental less expenses.'

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