Landlords: UK Property Tax Relief Changes and How to Get Prepared

Landlords: UK Property Tax Relief Changes and How to Get Prepared

In an effort to curb the current trend of rising rental prices, the British government have decided to make some changes to tax relief. The premise is that this would reduce the cost of renting or buying in areas such as London, and allow more people to be able to realise the dream of purchasing their first home. As rosy as this sounds, if you are currently a landlord or planning on delving into the property market, this might change your strategy.

Firstly, the changes come into effect on 6 April 2017. This would mean that landlords won’t be able to escape higher rate tax relief on mortgage interest and other finance costs. Notably, the changes (more on them below) will be phased in over three years in order to give landlords time to adjust.

The changes

From the 6th of April 2017 onwards, finance costs are being phased out as an allowable expense for calculating taxable rental profits. Just so you are well informed, the following costs are no longer an allowable expense:

– Mortgage interest

– Legal expenses

– Costs of obtaining finance

– Valuation fees for loan security

The changes will impact most landlords (exceptions below).

Individuals with rental businesses will be most affected. These rules don’t apply to companies and commercial or residential property development businesses.

Since these are major changes, this is likely to change the tax bracket of some landlords. For instance, rental profits calculation will go up, thereby increasing total income. Financial circumstances differ but couples who claim tax credits or child benefit might be affected as they can see payments reduce.

Phased launch

Fortunately, the tax relief changes take place over three years. The percentage of costs available as a basic tax reduction will increase by 25% each year between the 2017/18 tax season and 2020/21. Secondly, the percentage of costs deducted from profits will reduce by 25% each year between the 2017/2018 to 2020/21 tax year.


There are some exceptions:

1) Landlords who have property profits less than the cost of financing will pay a maximum of 20%.

2) Landlords with a low total income so that the rental income is in the personal allowance range won’t pay more than 20%.

Next step

Depending on your financial situation, you might not be affected or even profit from the new, sweeping changes. However, due to the complexity and importance of this change it is worth consulting an accountant and/or finance lawyer. They will be able to give you tailored advice on how to get an advantage. Moreover, they will be able to advise you after taking your property strategy into account. There is a chance that your strategy would need to be adjusted.

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Author: accountsandlegal

Our main mission in life is to provide accounting services to small and medium sized businesses with entrepreneurial aspirations. And we aim to do it in a way that translates into growth. Our Commercial Managers typically have an industry specialism, so you can be sure you are dealing with someone who understands your business and your industry.

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