Tips to reduce the impact of recent landlord tax changes

Tips to reduce the impact of recent landlord tax changes
30th October 2020

Have the Government’s recent tax changes affected your ability to deduct mortgage interest and other allowable costs from your rental income before then calculating your tax liability? Read on to discover how to minimise the affect the changes have on your portfolio’s profitability…

First things first, are you up to speed with the latest changes affecting tax for landlords? If not, read our article 'Tax: 5 things you need to know as a landlord'. This article highlights some of the more recent changes, including those that have come about as a result of the coronavirus pandemic. 

Until a few years ago, landlords were able to offset mortgage interest payments against rental income. But in 2015 the Government announced it would begin to phase this out. In 2017-18 the claimable tax relief reduced to 75%, and this financial year (2019-20) it’s been cut to just 25%. By 2021, it’ll be gone completely.

And the amount of Income Tax relief landlords can get on residential property finance costs will be restricted to the basic rate of tax. Therefore, if you fall into the higher tax bracket, you could be negatively impacted by all the changes. On top of this, taxable income is now calculated using gross rental income, which could cause landlords to be pushed from the basic tax threshold into the higher bracket.

How to reduce the impact of tax changes

To help mitigate the new rules, an increasing number of landlords are setting up limited companies when buying new rental properties. This means they’ll be subject to Corporation Tax of 19%, rather than the higher individual income tax rate. However, there are other ways to reduce the impact of the tax changes.

As well as limited company SPV investment, many landlords are looking to diversify their portfolios, increase their returns and improve the profitability of their investments. Options to consider include Houses of Multiple Occupancy (HMOs), student lets, multi-units and purchasing properties further afield.

Another quicker, less stressful option could be remortgaging. Since the tax changes began being phased in, there’s been a surge in the number of Buy-To-Let (BTL) mortgage products available, rising by 21% over the last 12 months. In addition, there’s been an increase in the number of new products, such as short-term lending and offset BTL mortgages, further diversifying the market. Moreover, many lenders have made further changes to improve criteria, such as a reduction in rental calculations, allowing for potential increased borrowing.

With a larger range of options available, deciding on the best mortgage is becoming increasingly difficult. That’s why it’s imperative you seek guidance from a specialist Buy-To-Let mortgage advice team, such as that at Leaders.

Headed up by mortgage adviser Alex Peacock, the team is solely dedicated to BTL investors. Each member of the team understands the complexities of the current market, making them best placed to offer the advice you need if you’re interested in remortgaging existing properties, looking to release any equity or keen to expand your current portfolio.

Why look into this now?

As the uncertainty surrounding our post-Brexit economy continues post-coronavirus, it’s important to consider how the changes could affect the current marketplace. Therefore, if you are considering raising equity from any of your current properties, it would be best to secure funds based on today’s market value.

Our expert BTL mortgage team recently provided one landlord advice on the restructure of nine investment properties. After a thorough analysis of the portfolio, Alex and the team were able to highlight a saving close to £500 per month across all nine properties, while also withdrawing over £210,000 to be used for additional investment purposes.


Want to find out how you could make your portfolio work harder, while also minimising the impact of recent tax changes? Contact the BTL mortgage team on 01344 404 731 or email to arrange a free initial assessment.

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