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Buy-to-let tax changes countdown: how to plan for them

Paloma Kubiak
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Paloma Kubiak

Income tax changes for buy-to-let borrowers will start to be phased in from next month. Here’s what you need to know.

From April this year, the government will gradually replace the ability to claim mortgage interest payments as an allowable expense with what is effectively a basic rate of tax credit on the total rental income that landlords pay. See our Guide to buy-to-let tax changes for a full run-down of changes and what it means for landlords.

Over two-thirds of landlords are aware of next month’s changes to mortgage interest tax relief reduction, said the Council of Mortgage Lenders (CML), citing a recent YouGov survey.

And 80% of high income landlords (earning over £100,000 a year) are aware of the change, which is likely to impact them.

While most landlords saw the looming changes as detrimental to their business, 30% of those polled said the changes would not affect them. This could be either because they operate their lettings through a corporate structure, fall below the threshold for paying income tax, have transferred the property to a spouse who does not pay tax, or don’t currently take advantage of mortgage interest relief.

Planning for the change

The CML said it is likely that most landlords who will be affected by the tax changes are already planning how they will mitigate the impact of reduced mortgage interest relief, particularly the third of respondents who said they are higher rate taxpayers.

Raising rent is the most commonly cited plan, with 19% saying they would definitely do this, and 5% saying they had already done so.

One in five landlords are considering either transferring property ownership into a corporate structure or to a partner who pays a lower income tax rate. A third are also looking into remortgaging as a cost-saving option.

Other changes

Landlords are less clear about other challenges and changes potentially affecting them, such as the recent changes to buy-to-let lending crtieria, introduced in January.

Only 45% of the landlords sampled by YouGov were aware of these new requirements, which could make it more difficult for some landlords to remortgage.

The significant majority (70%) of landlords are aware of the second home Stamp Duty surcharge introduced last year. About one in four of those surveyed admitted that the combination of the Stamp Duty measure and other reforms has caused them to stop expanding their portfolio altogether.