We are completely independent and will look at available buy-to-let properties in the market. We will also review the mortgage options available on the high street and also those lenders who only use an intermediary like ourselves. We give unbiased, straight-talking advice. We'll research the market for you to find you the best deal and save money if you're switching mortgages. Find the right buy-to-let mortgage for you, call our team on Tel: 01274 627444.
In the 2015 Summer Budget and Autumn Statement, the Chancellor introduced several changes that will affect anyone buying or owning a buy-to-let property in the UK. It is important that landlords understand these changes because they may affect the profitability of many buy-to-let portfolios. however small or large they are.
From 1 April 2016, higher rates of Stamp Duty Tax (SDLT) (3% above the current rates) will be charged on the purchases of additional UK residential properties. This may impact buy to let investors .
For example, a property bought now for £500,000 would attract SDLT rate of 5% or £25,000. But after 1 April it will be 8% or £40,000 if the purchaser already owns one or more UK residential properties.
Also from 2017 the amount that some landlords can claim in tax relief on their finance costs (such as mortgage interest payments, interest on loans to buy furnishings and fees incurred on taking out and repaying mortgages) is being gradually reduced over 4 years.
When the new restrictions are fully in force from the beginning of the 2020/21 tax year, landlords will only be able to claim tax relief at the basic tax rate of 20% instead of 40% or 45% for those in higher or top rate income tax brackets respectively .
How The Current Rules Work
At the moment, you can claim all of the annual mortgage interest you pay against your income from a property, and then only pay tax on the difference. So if your income tax rate is 40% then your tax bill is 40% of this difference.
Here's and example. Let's say your buy-to-let property generates a rental income of £10,000 a year, while you pay £9,000 interest on your annual mortgage payments. At the moment, you only pay income tax on the £1,000 difference between the rental income and the mortgage interest.
If you pay the basic rate of (20%), you'll owe £200. Those who pay the higher rate of tax (40%) will owe £400.00, and if you pay the top tax rate of 45%, it would be £450.00. In another example, if you receive £15,000 in rent annually and pay mortgage interest payments of £10,000 a year, a basic-rate taxpayer will owe £1,0000 under the current rules, while a higher-rate taxpayer will owe £2,000 and a top-rate taxpayer would owe £2,250. These examples assume there are no other deductable expenses for tax purposes.
The New Rules Explained
From 2017, the way the tax relief is calculated is gong to change. Under the new rules, you will owe tax at your personal tax rate on the entire income from a property. From 2021/21, when the rules are fully in force, you will only be able to deduct a maximum of 20% of your mortgage interest payments from this tax liability to calculate the amount of tax due.
This means that if you pay income tac at the basic rate of 20%, you won't see any change in the amount you owe.
Imagine that your buy-to-let property generates a rental income of £10,000 a year with mortgage interest paid of £9,000. In 2020, when the new rules are introduced in full, you will be taxed at 20% of £10,000 (or £2,000). Then 20% of your £9,000 mortgage interest payments or (£1,800) can be deducted, leaving you with a tax bill of £200, the same as before.
But higher and top-rate taxpayers will pay more. Based on the same scenario, in 2020, higher-rate taxpayers will be taxed at 40% of £10,000 (or£4,000), but will only be able to deduct 20% of thier £9,000 mortgage interest payments (or£1,800).
This will leave higher-rate taxpayers with a tax bill of £2,200, compared to £400 under the current system. Those paying the 45% tax rate will owe £2,700, compared to £450 today.
Looking at the example where the annual rent received is £15,000 and mortgage interest payments ate £10,000 a year, basic-rate taxpayers would still owe £1,000 under the new rules, the same as before. However, higher rate taxpayers will owe £4,000 from 2020, compared to £2,000 under current rules, and top-rate taxpayers will owe £4,750, rather than £2,250.
Wear and Tear
That's not all that may be changing. The Chancellor has proposed that, from April 2016, you'll only be able to claim for 'wear and tear' costs actually incurred on replacing furnishings when calculating taxable profits. You'll do so by providing itemised receipts that show the replacement goods you've purchased or repairs you've carried out. Currently, you're given an allowance regardless of your actual expenditure[3,4].
Prospective landlords and those with existing properties may want to work out how their plans will be affected by the proposed new rules to avoid a surprise later on. When planning, remember that just as these rules are changing now, they might do so again in the future.
The effect of tax rules can change and will depend on your own circumstances. Barclays has not and will not provide you with tax and legal advice and we recommend that you take your own independent tax and legal advice tailored to your individual circumstances.
Safety Rules are Changing
Landlords must already follow certain safety rules. Thes include obtaining an Energy Performance Certificate for a peoperty before advertising it to tenants , as well as an annual Gas Safety Certificate  for their property's boiler and other gas appliances. New measures include rules for preventing legionnaire's disease  and for fitting smoke and carbon monoxide alarms .
Also, government is proposing new rules to make it more difficult for landlords to evict a tenant if the property's appliances don't have a current Gas Safety Certificate