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Residential buy-to-Let

Ask the Experts: How will buy-to-let tax changes affect landlords in 2017?

Author: Gemma





Experts on HMRC buy-to-let tax changes

From April 2017, the amount of tax relief that landlords of residential properties can claim for finance costs will be restricted to the basic-rate of Income Tax. Click here for an example of buy-to-let tax changes.

What are the buy-to-let tax changes and when will they apply?

Currently, landlords can claim up to 45% tax relief however, this amount will be reduced and capped at 20%. The change will come into play this April and will be phased in over a four-year period.

Click here to see what finance costs will still be deductible during the transition period.

It’s a move that’s been criticised in the rental market as likely to make it more expensive for those who own rental homes, with many speculating that this could cause a knock-on effect in the sector, with a greater number of owners raising prices to compensate.

The buy-to-let tax changes in 2017 will have a greater impact on higher-rate taxpayers. A basic-rate taxpayer’s liability is unchanged unless the new way to calculate profit pushes individuals into a higher tax band.

You can use this buy-to-let tax changes calculator to see how the restrictions will affect you.

With changes to HMRC tax relief on buy-to-let mortgage interest just around the corner, Experience Invest asks industry experts what less income tax relief will mean for landlords, tenants, and investors.


Mark Lawrinson, Regional Director, Portico London Estate Agents

“There’s no doubt the upcoming tax changes will makes things more difficult for landlords, but the first thing to note is that landlords who are basic rate tax payers (earning less than about £40k), or those without a mortgage, won’t be affected at all. Secondly, there are steps landlords can take to try and cut their interest costs. The first being re-mortgaging. Buy-to-let mortgage interest rates have fallen significantly in recent years, so deals currently on the market may well be substantially better than on products arranged a few years ago.

“With large increases in property prices in London, another tip is to get your rental property re-valued. This will make your lender recalculate your LTV, and a lower LTV means a better interest rate and a larger choice of lenders.”

Just Landlords

Rose Jinks, on behalf of specialist Landlord Insurance provider Just Landlords

“While the reduction in tax relief is spreading panic through the buy-to-let sector, it’s important to note that many landlords won’t be affected by the change.

“We’re certainly seeing that most of our Landlord Insurance policies are still for individual landlords, rather than limited company operators, which should provide confidence to those worried about their investments.

“Although swapping to a limited company structure could be beneficial for your business, now is the perfect time to analyse all of your options and weigh up whether moving to a limited company in order to avoid the change will actually be worthwhile. You may find that the higher interest rate on limited company buy-to-let mortgages completely cancels out the benefits of dodging the tax relief reduction. For our customers, it certainly seems that sticking with the traditional structure is the best way to go.”


Isla MacFarlane Digital News Editor Show House

“Changes to the mortgage interest rate relief will irreparably dent the buy-let-let business model. A ban on tenant fees and 3% stamp duty surcharge may have made some wannabe landlords think twice, but most buy to let investors are in it for the long term and such costs could easily be recouped over 10-20 years. Not so with the loss of buy-to-let tax relief, which will permanently cripple profitability.

“While investors are free to leave the market in search of higher yields, tenants still need somewhere to live. Fewer rental homes and higher expenses for landlords are likely to translate into higher rents. The obvious way for the government to tackle this is to encourage large-scale institutional investment in the private rented sector. Purpose-built accommodation that delivers a yield premium to investors would boost supply without depriving first-time buyers. Britain’s homeownership dream has been waning for some time, and Build to Rent is a kinder alternative to an under-supplied, over-burdened rental market.”

Tenant Referencing

Paul Routledge, CEO of

“Personally, I think that the buy-to-let tax changes will put landlords off the UK buy to let market. Landlords are already selling their residential portfolios; I’m actually in the process of selling my portfolio at the moment for this exact reason.

“I don’t believe renters will get a fairer deal out of it, as there will always be a demand for rented property and a shortage just drives up the price and drives down the conditions – that’s a simple fact of life when demand outstrips supply.

“I can’t see that first-time buyers will really benefit much either, as there is not one of my tenants that could afford to buy their own home at the moment.

“The most embarrassing thing for me is the so-called government of this country do not understand the most basic principles of life, let alone the ins and outs of the private rented sector.”


Keith Osborne, editor

“The tax changes alter the very basis of calculating landlords’ income, and this will have most effect on those who use a property to top up income, where the profit still kept them below the higher tax threshold. Calculating on rental revenue from now on will bring far more of them to the higher rate, with the increased tax fundamentally affecting the property’s worth as an investment asset. With potential new investors having already been put off by substantial stamp duty hikes for the last couple of years, this change looks to put the boot in to existing investors too. Those unable to get a decent return on their modest savings as a consequence of the record low base rate for the last few years now have one less alternative to provide a satisfactory yield.”

The House Shop

Nick Marr, Co-founder of property marketplace

“There is no doubt that many landlords are feeling unjustly targeted by the raft of new legislation and tax changes that are heading their way. Professional landlords, who treat their property portfolio as a business, have already started adapting to try and minimise the negative impact of new changes – mounting legal challenges against Section 24 and incorporating to avoid tax relief cuts. However, “accidental” or DIY landlords are in a very different position and are far, far less likely to adopt the same types of strategies.

“While professional landlords may well look to incorporation and rent rises as a solution, private DIY landlords are more likely to look elsewhere for cost-cutting measures. We are seeing more and more landlords deciding to ditch the traditional full management letting agency service and instead opting to manage their properties themselves. This allows them to recoup the 10-15% of monthly rent that they would be paying their agent, and gives a little more wriggle room to absorb additional tax costs.

“Many of the single-property private landlords we speak to have incredibly good relationships with their tenants and feel it is unfair to pass on the increased costs by way of a rent rise. As a result of this, I believe we will see more and more landlords shopping around and trying to save money on every aspect of the letting process – from advertising their property to repair costs and everything in between. Unfortunately, even with many landlords viewing rent rises as a last resort, there will undoubtedly be a significant number of tenants who end up as unintended victims of the BTL clampdown.”

Property Checklists

Kate Faulkner, property analyst at

“The government has decided to make buy-to-let less attractive from an investors perspective and in the meantime, make financial investment more attractive. As a result, it is vital that buy-to-let investors are able to compare what they currently earn from their property, both from an income and potential capital growth perspective, to what they will earn in the future, and then compare this to investing in financial assets – which can be ones which are property related.

“For those that have invested for some time, it may mean restructuring your portfolio to ensure it all remains profitable. For those new to buy-to-let, you must understand the tax implications before investing and also know if you will lose benefits, such as child benefit, if rental income takes you above the tax threshold.”

Residential Landlords

Karl Hopkins on behalf of Residential Landlord

“Restriction of tax relief on finance costs will not make buy-to-let a less viable form of investment. However the change, which is being phased in over four years, will alter the dynamics for those landlords who have highly geared portfolios.

“In such cases, where mortgage repayments will take up a substantial part of rental income, some careful calculations and probably some re-calibration will be needed. For example, those with unrealised capital gains may find it to their advantage to cut back on the size of their portfolios so as to reduce their gearing and any reliance they may have on the existing tax regime for the sustainability of their mortgage repayments.

“Companies are not affected by the change, which may make incorporation more attractive buy-to-let investment vehicles in the future. However, simply switching from individual or partnership to company status is not likely to be an option for most private landlords, since it would almost certainly mean that property titles would have to be transferred to the new company and mortgages would have to be re-negotiated.”

Experience Invest

Dale Anderson, Project Manager at Experience Invest

“In light of buy to let tax changes and the 3% Stamp Duty levy, buy-to-let property investors should consider their options carefully to determine what is best for their property portfolio.

“Investors may wish enter an off plan property investment as they tend to be cash only deals and are generally priced at a lower entry level when compared to completed properties. Investors can often secure a discount on off plan properties and benefit from any price growth throughout construction. Although the additional 3% Stamp Duty rate will be applied, investors will not be affected by the new tax relief changes when purchasing this type of asset.

“We have seen more interest in commercial offices, hotels and student properties in recent months as investors seek an alternative way to secure rental returns from property. Our buy-to-let investors have shifted their attention to top performing regional cities such as Liverpool and Manchester, to reduce their initial outgoings and to secure higher than average rental returns.”

UK buy to let tax changes

Impact of tax relief changes on limited companies

Limited companies will not be affected by tax relief changes. This is perhaps why Kent Reliance building society reported that 100,000 limited company loans were taken out in the first nine months of 2016 – twice the amount taken out in 2015.

Crunch online accounting agency has advised that landlords should think carefully before going down the limited company route and suggests taking the advice of a trusted accountant before taking action.

“With changes to the way buy-to-let landlords are taxed due to come into force this April, it’s a good time to review your property portfolio and how it’s structured.

“One action that could minimise the impact of the changes is to form a limited company – all profits will then only be subject to Corporation Tax (currently 20%, but due to fall to 17% by 2020). Whether this is best for you depends on your individual circumstances, but if you’ve more than one property with reasonably high borrowing, forming a limited company could be a good option.

“The limited company route is more suited to those who can afford to leave the profits in the business. If you need to regularly withdraw the profits, you’ll end up paying both corporation tax and dividend tax.

“As always, we’d recommend speaking to an accountant before taking any action.

“There are other considerations, including the fact that transferring property ownership to a limited company incurs costs, such as Capital Gains Tax (the difference between current market value and the price you originally paid) and Stamp Duty. You’ll also be liable to pay any early redemption fees on your current mortgage deals – your lender will be able to advise you further on this.”

John Charcol

Ray Boulger from independent mortgage experts John Charcol

“Now is a good time for landlords to seek specialist advice as there is not a one-size-fits-all solution.

“The new way to calculate income may push lower rate tax payers into the 40% tax bracket. There will be a substantial effect on landlords who receive child benefits – especially those who have more than one child – and for those who will find themselves in the 45% tax bracket.

“Landlords should look for sensible alternatives which will vary for new investors and established landlords.

“For new purchases setting up as a limited company is one option, as properties held in a limited company structure still qualify for tax deductible mortgage interest rates.

“However, the impact of Capital Gains Tax and Stamp Duty Land Tax will often mean it is not worth switching properties already owned to a limited company structure.

“Most existing landlords, especially those with large portfolios, may feel that it is not worth switching as the sums may not stack up.

“Buy-to-let fixed rates are at lowest ever levels and so re-mortgaging will cut costs for many landlords.

“Lenders have adapted to the new legislation and are now offering a better range of buy-to-let mortgage products compared to a year ago for properties owned by a limited company, and also setting up as a limited company will often boost the maximum level of borrowing.

“Couples who own buy-to-let properties may also consider switching the property into joint names. However, there may be tax implications such as Stamp Duty. I would imagine that in most cases couples who own buy-to-let property would have already purchased in the most tax efficient way.”

HMRC Buy-to-let tax relief

Buy-to-let tax changes tips:

  • Attempt to reduce void periods by finding good tenants who aim for long-term lets. If this is not possible, try to keep track of all repairs and maintenance and advertise before the contract is up for a quick rental turnaround.
  • Take a tip from Portico and get your property revalued. You may end up with a better interest rate and a larger choice of lenders.
  • Carefully consider if it is worth setting up as a limited company. Seek professional advice to see if this strategy is worthwhile in the long-term.
  • If you are a property investor, consider asset classes which are not affected by the changes. Diversifying your property portfolio could help reduce risk.
  • You could reduce outgoings by managing your property yourself. If you are unable to manage your property, ensure that the price you are paying your agent is competitive.

With April’s buy-to-let tax changes just around the corner, now is a good time to seek professional advice about HMRC tax relief on buy-to-let mortgage interest. Landlords and investors may wish to adjust their property portfolio to ensure that it remains as profitable as possible in 2017.

How will the buy-to-let tax changes affect you? Use the box below to share your story.

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