Buy to Let

Residential Buy to Let tax changes – fair or unfair?

Every property landlord is different.  Some move round the monopoly board, buy up everything available and build an extensive portfolio or some have just 1 or 2 properties to help supplement their income.

One thing each Property Landlord has in common, since George Osbourne announced his residential Buy to Let (BTL) tax reform, is they must now rethink the impact of tax.

The changes to tax on Buy to Let properties were unexpectedly announced in the July budget and will be phased in over next 4 years – starting next April.

The changes have rocked the Buy to Let sector and many Private Property Landlords are urgently reviewing their personal and business tax situation.

Will the Buy to Let Bubble burst?

In recent years, there’s been growing uncertainty amongst landlords that the bubble would inevitably burst in an already precarious market.

Mortgage interest rates had slowly crept up, property prices were rising rapidly and consequently the yield from rental income was falling quickly.

For many landlords the change to tax is the final nail in the coffin for the Buy to Let market.

What are the changes?

  • Mortgage interest relief will be withdrawn and BTL landlords can only offset mortgages at a basic rate of 20%
  • Wear and tear allowance of 10% will be withdrawn, only actual costs incurred can be deducted.

Who is affected?

Higher rate tax payers that are UK resident will pay more tax and are likely to see a fall in profit. However, foreign investment remains unaffected and corporate property is taxed differently.

“An investor with a £150,000 buy-to-let mortgage on a property worth £200,000 is likely to see his or her net annual profit collapse from £2,160 a year to just £960”*

(According to estimates by Nationwide building society.)

What are the consequences for BTL Landlords?

Everyone is different and depending on the number properties, type of properties in your portfolio, and your personal tax allowance the amount you will have to pay in tax will vary.

  • The amount of tax paid on the investment could increase by at least twice as much
  • Tax increase could result in the residential property making a loss
  • Tax increase could change the tax band from low rate to high rate
  • Landlords forced to sell up
  • Landlords forced to increase rent


What are property landlords’ options?

The options range from selling up entirely to starting up a company for managing property portfolio, switching to corporate property, utilising spousal tax breaks or setting up a trust.

There are complex tax implications associated with alternatives mentioned above and you should seek professional advice before making a decision that may incur more tax or possible fines from HMRC if viewed as tax avoidance.

What are the consequences for renters?

They may lose their home or have their rent rapidly increased to cover the landlord’s losses.

When is it happening?

It’s a phased approach starting from 6 April 2016 and completing in 2020.

How will HMRC calculate residential Buy to Let tax over next 4 years?

4 Year Phase Deduction from property income
2017-18 restricted to 75%
2018-19 50% finance costs
2019-20 25% finance costs
2020-21           0%


As with any changes to tax laws there will be winners and losers.

Many landlords believe the Buy to Let tax reform will be the pin that bursts the Buy to Let bubble.

For many it’ll be a new opportunity to buy up the extra property flooding the market.

Buy to Let tax changes – fair or unfair?

If you’re a landlord, thinking about investing in property or currently renting a property we’d love to hear what you think.

Get in touch via Twitter or LinkedIn or share this blog with anyone you know affected.

Call Bruce on 0141 290 0262 if you would like to talk about a tax review.

Warm regards

Bruce Wilson

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