Landlords feel impact of tax relief reduction

Landlords racing to beat the self-assessment deadline on 31st January must for the first time factor in cuts to mortgage interest rate relief when completing their tax returns.

Landlords used to be able to claim tax relief at their marginal tax rate, which meant basic, higher, and additional rate taxpayers were able to benefit from relief at 20%, 40% or 45% respectively.

However, this deduction from income was restricted to 75% of finance costs from April 2017, with the remaining 25% as a basic rate tax reduction. In the current 2018/19 tax year the reduction in the mortgage interest allowance is 50%, and it will be further cut back to 25% in the 2019-20 tax year. By 2020 all interest costs incurred by a landlord will be given as a basic rate tax reduction.

The changes mean that the first reduction in relief will be reflected in 2017/18 tax returns that must be filed before the end of January, leaving many higher and additional rate taxpayers facing steeper tax bills.

Keep costs to a minimum

The good news is there are plenty of competitive buy-to-let mortgages available for landlords looking to reduce their outgoings by remortgaging to a cheaper deal.

Buy-to-let mortgage rates are at rock bottom lows right now, with landlords able to fix rates at less than 2% for as long as five years. There are new deals being launched all the time, including 10-year fixed rate deals for landlords concerned about interest rates increasing. Lenders are competing for business by offering lower stress rates too, so there are plenty of options available.

If you’re a landlord and are concerned about the impact of mortgage relief tax changes, review your current mortgage rate and see if you might be able to make savings by switching to a better deal.

Seek professional advice if you’re not sure which deal to choose. A broker will be able to talk you through all the different options to help you decide on the right mortgage based on your individual circumstances.