Changing Buy-to-Let Tax - Phased Changes Explained | INSUREPAIR ®

Changing Buy-to-Let Tax - Phased Changes Explained

The changes to tax and income calculation for landlords won't happen immediately, but will be phased in over the next four years. Here, we take a closer look at those phased changes, and how they will affect landlords who pay the higher rate of tax (40%). 

Examples based on a higher rate taxpayer with a rental income of £20,000 and finance costs of £10,000, based on current higher rate tax of 40% and basic rate of 20%.
2017-2018 - you will be able to deduct 75% of finance costs from the income from property, and 25% will be subject to basic rate reduction.
e.g. Profit will be £20,000 less £7,500 (75% of finance income), which is £12,500. You will pay 20% tax on £2,500 of that profit (£500) and 40% - normal tax rate - on the remaining £10,000 (£4,000).
Tax = £4,500
2018-2019 – 50% of your finance costs can be deducted and 50% deducted at basic rate.
e.g. Profit will be £20,000 less £5,000 (50% of finance income), so £15,000. You will pay 20% of £5,000 (£1,000) and 40% of the remaining £10,000 (£4,000).
Tax = £5,000
2019–2020 – 25% of your finance costs are tax deductible and 75% will be given basic rate tax reduction.
e.g. Profit of £20,000 less £2,500 (25%) = £17,500. You will pay 20% of £7,500 (£1,500) and 40% on the remaining £10,000 (£4,000).
Tax = £5,500
2020-2021 – all finance costs will be subject to basic rate tax relief.
e.g. Your profit will be £20,000, the whole rental income. Of this, you will pay 20% tax on the £10,000 finance costs (£2,000) and 40% on the remaining £10,000 (£4,000).
Tax = £6,000
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