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Buy to let property tax changes: New regulations, experts opinion and ways to deal with it

Abul Nurujjaman, 

There are new restrictions affecting landlords with regard to tax on buy to let properties. The new regulations involve new restriction on tax relief. These new laws and regulations introduced by George Osborne for summer budget will make it harder for some investors to achieve a profit. However this has also led to increased borrowing, when it comes to buy to let mortgages which are due to impending increase in taxes. 


Evidence of this can be seen because there was a 22% in January compared with the same month in 2015, as investors hurry to beat the upcoming tax changes. This has led to an unforeseen result because the 22% demonstrates that the banks and are willing to lend to buy to let property investors, this shows they have confidence in the market.

Property firms have been reporting about high increase in the amount of people buying property s by using their companies in order to defy the new rules.


Channel S on 30/12/2015



These new measures and regulations will affect 1 in 5 landlords, according to government they go on to state that the new taxes could even surpass 100% of profit. 


Don t be concerned if: 

1) You own your property outright and rent out 

2) You are selling your property within the next year or two  

Be concerned if: 

3) You own a buy to let mortgage

4) You are keeping your property beyond 2017 


So therefore this just means that if you are a portfolio holder planning to sell you property, the new tax laws will not affect you. However if they continue to also sell properties or put more on the market this could led to a fall in prices because there is more supply and demand. 


Currently 20% is a cap on the amount of tax relief you can claim on mortgage interest however it is going to be capped at basic rate. Secondly, this aspect has been largely been over looked, the manner by which income is totalled. It is not allowed for landlords to deduct mortgage loan interests from rental revenue before they calculate their taxable profit anymore. 


Tax experts only just understand the effects of new regulations. The expectation is that it is only going to affect 1 in 5 individual buy to let property owners, who are going to pay more in taxes than they previously did according to the government. Although tax experts have started that this estimate is very low and that it will affect more landlords than that predicted by the government.


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There are 4 key changes or developments on buy to let properties: 


1) New Stamp Duty taxes (Changes from 1st April 2016) 


The changes being made to stamp duty taxes is that it will be 3% higher for people purchasing buy to let properties, than for people buying a property as their main residence. This new law is also applicable to people who purchase extra residential properties in the United Kingdom apart from Scotland, including second homes. 


For people who are single or in relationship that already own one property like their own homes. Look below to see the new regulation on stamp duty rates:




Tax Band

(Share of purchase cost )

Normal Rate

(Main home or first residential property)


Higher Rate

(Extra properties)


£0 - £125,000





Purchases lower than £40,000 exempted


£125,000 - £250,000






£250,000 - £925,000






£925,000- £1,500,000






Above £1,500,000






As seen from the first table above there will be no stamp duty calculated if the property is sold for less than £40,000. This means that the new property owner does not have to complete a stamp duty return for the purchase. When dealing with purchases between £40,000 and £125,000 stamp duty calculated based on the whole or complete purchase price. Anything higher that this band is calculated portion by portion - meaning that stamp duty will depend on what portion, part of the purchase price falls into the bands.

Suppose you buy a property that costs £300,000, an example is given below:



Stamp duty


* 2%

= £5,000


*  5%

= £2,500

= £300,000


= £7,500


Will it affect every transaction? 

This new rate or stamp duty taxation only occurs in the countries in the United Kingdom excluding Scotland. It only affects transactions where at the end of the day, the purchaser owns more than one property and is not replacing the home they live in. For property owners who already own a buy to let houses, the higher rate will apply upon the purchase of more houses. The standard or normal rate is applicable where the property owner at the end of day purchase is seeing their current residence and moving into a new home to live in, this is regardless of the amount of property they person owns. 


2) New tax relief rules on buy-to-let mortgages (relief will be capped at 20%)


Presently, a buy to let property owner can claim relief on their taxes on items such as mortgage interest, just like if they were a regular business. This basically means that they can subtract finance costs from their taxable revenue. 

As of now the tax relief that buy to let property owners can claim on their mortgage interest can be at their marginal rate (is a tax rate whereby taxpayers pay on an additional pound £ of income they earn).


However, tax relief is going to be capped at a basic rate of 20% this will be starting on 1st April 2017 and according to the government this new regulation will not take into account what income tax band an owner is placed. This will be a huge benefit for taxpayers who pay at a higher rate (40% currently) because will have to pay half of what they are currently paying.                 
Buy to let property owners have to calculate their profit in relation to tax without subtracting finance costs, which means profits, will increase. 


An important note that needs to be pointed is that all these changes will not occur overnight. Before all the changes come into effect there will be various phrases (going 4 years) when dealing with tax relief deductions:

2017-2018: the deduction from buy to let property revenue (which is the way it is presently) will be limited to 75% of finance costs, while the rest (25%) will be allocated or being used as basic rate decease. 

2018-2019: 50% will be available as a basic rate tax reduction while the remaining will be restricted to 50% of the finance costs in relation to property income deduction.  

2019-2020: 75% will be allocated as a basic tax rate deduction, with the remaining 25% reserved as income from property deduction. 

2020-2021: This is the year that the new tax regulations on buy to let property income will come into full effect. This year will mark the beginning of every financing costs being allocated or given as a basic tax rate been reduction.

Who do the new rules affect?

The people that will be adversely affected will be the additional rate taxpayer who will most likely make a loss due to reduction in tax relief. While the higher rate taxpayer benefits because they will see their tax relief fall to less than half. However, this on the contingent upon the ratio between rental revenue and buy to let mortgage costs.


Tax experts have developed criteria to tick off in this situation. The first criteria is for higher rate taxpayers that have finance expenses or costs go above 75% of rental revenue might receive returns reaching to zero by 2020 - 2021 tax year.  The last criteria are that additional rate taxpayers, their threshold will be 68% of rental income.

Under the new rules taxpayers could definitely start making losses because they will paying more in taxes than they will be earning as a profit. According to the government these new regulations were brought in order for homeowners to revive a fair shake as well when buying a home. One of debates ongoing particularly among buy to let landlords is those with a buy to let mortgage will see a major dip in profits for their investments, so those who have the money to buy a property without a mortgage will do so anyway.   

New profit calculation rules

The manner by which buy to let landlords calculate profits will change due to new regulations with regards to tax relief. This new change is mainly because landlords will not be allowed to subtract their mortgage interest and other finance costs from their rental income anymore, therefore leading to increased higher taxable income.  

Tax Threshold

Higher total taxable income could lead to major implications for buy to let property owners. This basically suggests that a percentage of basic rate taxpayers could get shifted into the higher rate tax band but this does not mean that they will see tax relief at a higher rate. Also this could mean that higher rate taxpayers could be shifted to the additional rate band.
An essential point to note is that for people who earn £50,000 and over they are not entitled to claim child benefit and for people who earn £100, 000 and over they beginning to lose their personal allowance.

New Capital Gains Tax (CGT) deadline

Capital gains tax has to be paid on profits that go above an individual s personal allowance, so taking this in to account when a property owner sells their a property which is not their main residence CGT have to paid. Buy to let landlords who sell their property have to CGT on anything above £11,000 (personal allowance) which is contingent on how much a person earns and what income tax band they fall into, they can pay either 18 % or 28%. 



Disclaimer: The information provided in this blog is brought to you by Taj Accountants. As you are reading this blog of your own free will, any information taken from this blog is at your risk. Before using the information provided to apply, to your business seek professional or legal advice.Taj accountants will not be liable for any damages.

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