January 16, 2018

Preparing for the second phase of Mortgage Interest Tax Relief changes

It has to be said that 2017 was another difficult year for landlords, with a host of legislative changes hitting the buy-to-let sector over the last 12 months. As such, it’s more important than ever that landlords are prepared, especially for the second phase of the mortgage interest tax relief changes…

Just Landlords, a provider of 5 Star rated Landlord Insurance, encourages landlords to understand their obligations in order to protect their investments and tenants, and ensure that they are complying with new and existing regulations.

There was a record number of Government consultations relating to the private rental sector last year, so, as we dive right into 2018, it’s a great time to reflect on some of the key changes introduced over the past year and get prepared for the new rules that many will face this year.

This does not solely apply to the mortgage interest tax relief changes; educating yourself and working closely with professionals will ensure that property remains a solid business option and a better investment than many alternatives. If your finances are calculated correctly and compliance is taken seriously, property can still be rewarding in 2018.

Landlords, if you are struggling to keep on top of changing legislation and financial regulations, it’s advised that you seek professional help; the cost of having your asset taken care of will be far less than a fine for non-compliance.

So, let’s get to the mortgage interest tax relief changes with a little round-up:

  • Until 2017, landlords could deduct mortgage interest and other finance costs from their rental income before calculating their tax bill.
  • April 2017 marked the beginning of the Government’s gradual reduction of this relief, from 100% to 0% by April 2020. Instead, landlords will claim a tax credit worth 20% of their mortgage interest – a change that will hit high-earning landlords hardest – when the restriction is fully implemented.
  • For the 2017-18 tax year, landlords can still claim 75% of their finance costs at the higher rate of tax, with the remaining 25% being deducted at the basic rate. From 2018-19, this will fall to 50%. In 2019-20, it will decline to 25%, with the other 75% receiving basic rate deductions. Finally, in 2020-21, all finance costs will only receive the basic rate tax deduction.
  • As a result, some landlords have considered selling up altogether, while others have looked at setting up a limited company, which are exempt from the mortgage interest tax relief changes.
  • If you’re a landlord with mortgaged properties, you must get your accounts in order before the second phase of the change. It’s vital that you understand what the changes will mean for your profits, so being organised is the first step.
  • Always ensure that you seek expert financial advice if you do not fully understand what impact the restrictions will have on your lettings business.

The Government’s guide to its mortgage interest tax relief changes can be accessed here.

Guest blog from Just Landlords.