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Tax rules that affect buy-to-let landlords and property investors in 2018

Mortgage interest tax-relief changes set to eat into profits

From mortgage interest tax relief changes to capital gains complexities, the new tax year can bring fresh confusion for owners of buy-to-let property.

Here, we take a look at the key taxation issues facing landlords in 2018 and explain how they could affect your investment portfolio.

  • Whether you’re a letting your first property or are a portfolio landlord, you can get advice on your mortgage options by calling Which? Mortgage Advisers on 0800 2942 849.

Mortgage interest tax relief

The government’s cuts to mortgage interest tax relief could significantly reduce the profits of many landlords.

Before April 2017, landlords were able to deduct their mortgage interest payments from their taxable income before they calculated their tax bill – so that they would be taxed on their profits, rather than their overall turnover.

This offered significant savings, as most buy-to-let investors have interest-only mortgages.

Now, though, when investors file their 2017-18 tax returns (due by 31 January 2019), they’ll only be able to claim relief on 75% of their mortgage interest and will get a 20% tax credit on the rest.

The rate at which interest can be deducted will continue to drop each year, until it’s fully replaced in 2020-21 by a tax credit limited to the basic rate of tax (20%).

This change significantly threatens the profits of higher-rate taxpayers, and could potentially push some basic-rate taxpayers into a higher bracket.

The table below outlines how the changes will work. For full worked examples, you can check out our story on mortgage tax relief changes for 2017-18.

Tax year Mortgage interest deductible under the old system Mortgage interest qualifying for 20% tax credit under the new system
2017-18 (filed by 31 January 2019) 75% 25%
2018-19 (filed by 31 January 2020) 50% 50%
2019-20 (filed by 31 January 2021) 25% 75%
2020-21 onwards 0% 100%

 

Need help calculating your tax?

Calculate your income tax and submit your return direct to HMRC with our jargon-free tax calculator

Capital gains tax

The rules around capital gains tax on property can be quite complex. What you’ll need to pay varies depending on whether you operate as an individual investor or have set up a company for your portfolio.

Capital gains tax when selling buy-to-let properties: individual landlords

If you own the home as an individual, you’ll need to pay capital gains tax on growth in the value of the property. But the bad news is that property is taxed at a higher rate than most other assets.

In simple terms, basic-rate taxpayers will need to pay 18% tax on capital gains on their buy-to-let properties, while higher-rate taxpayers must pay 28%.

For the 2018-19 tax year, you’re allowed to make an annual profit of £11,700 on properties before paying the tax. You can also deduct buying and selling fees, and claim relief on significant home improvements.

  • To learn more about how gains are taxed on property, including how letting relief and private residence relief work, see our full guide on capital gains tax on property.

Landlords given capital gains tax extension

Individual landlords were offered something of a reprieve in last Autumn’s Budget, when it was announced that the plan to make investors pay capital gains tax within 30 days of selling properties has been deferred until April 2020.

Currently, buy-to-let investors can wait until their next tax return to settle capital gains tax bills.

Setting up a limited company: capital gains tax implications

If you’re setting up a company for your property portfolio, the spectre of capital gains tax looms large.

Unless you can prove the property is a business rather than an investment, you’ll essentially be selling your properties to the company, thereby triggering capital gains tax and the 3% stamp duty surcharge.

Investors who have set up companies for their portfolios could also face higher bills in the long run when they come to sell their properties.

This is because of the freezing of the indexation allowance from January this year. Previously, this form of tax relief allowed companies to reduce their capital gains for tax purposes based on how long they had owned their properties.

Stamp duty on investment properties

In April 2016, the government introduced a controversial 3% stamp duty hike for buy-to-let investors and second-home purchasers.

This new tax had a significant impact on landlords, with the bill on a £200,000 home rising from £1,500 to £7,500.

If you live in England or Northern Ireland, you can calculate how much stamp duty you’ll need to pay on your investment property by using our buy-to-let stamp duty calculator below.


The stamp duty systems work slightly differently in Scotland and Wales, as explained in our guides on Land and Buildings Transaction Tax and Land Transaction Tax respectively.

Other changes for buy-to-let landlords in 2018

From local licensing to right to rent, landlords have been hit with a spate of new regulations in the past couple of years.

With that in mind, you can check out our guide to all of the key changes landlords need to look out for in 2018.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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