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New Tax Year Changes for Landlords

The 2019-20 tax year is just around the corner, with the 6th April looming ahead, promising financial changes and tax year changes for all. When it comes around, landlords will see further changes to the tax relief that they can claim, and it’s reductions in that relief that is occurring this year.

Currently, landlords can deduct their mortgage interest payments by 50%. Along with this, they can claim a basic relief rate on the other 50%.

landlords and renting in the UK

New Changes

With the new 2019 tax year, this changes so that landlords are only able to deduct 25% of mortgage interest payments. This change was announced four years ago, in the 2015 Annual Budget. Landlords would be able to claim tax relief on their mortgage interest payments at a marginal tax rate. Basic rate taxpayers could benefit from 20%, higher rate at 40% and the additional rate at 45%.

The Future

When the 2020-21 tax year comes around, landlords will have further changes, with them only being able to claim tax relief at the basic rate. This won’t matter whether they are a higher or additional rate taxpayer, but it will still be possible for other costs from gross rental income to be deducted.

Reviewing Your Mortgage

Any landlords who are concerned about added costs should review their mortgage and know that they are on the best deal possible. As a landlord, you can remortgage a lower interest rate and keep your monthly outgoings to the minimum, reducing the impact of the tax relief changes. This may all seem doom and gloom, but the good news is that there are a number of mortgages on a buy to let basis that is available which is at the highest possible number in a decade.

Limited Company Advice

If you are using a limited company, it’s always worth getting further advice to ensure that your tax reductions will be calculated correctly. Recently, the number of landlords using a limited company to hold their properties has gone up, and according to 2018 research, one in five landlords say that they had set up a limited company to offset the changes to the tax treatment of buy to let.

There are always pros and cons to any route for landlords to manage their property tax, but a limited company needs consideration. The costs including mortgage interest against income can be set for corporation tax purposes, but there could also be more considerable costs involved.

Any landlords with existing properties that they wish to transfer to their limited company have to go through a process similar to buy and sell, which could lead to a higher tax bill after stamp duty and capital gains tax are factored.

It’s always a smart financial decision to seek tax advice before signing up with a limited company; otherwise, you risk getting it wrong in the long term. Tax for landlords has to be managed carefully so that it remains paid on time and in accordance with the changes.

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