The Buy To Lets calculator provides an indication of the changes applying to individual landlords regarding deducting their costs (including mortgage interest) from their profits before they pay tax which was phased in from April 2017 over 4 years so that in 2020/21 all costs will be restricted to basic rate reduction.
Previously, individual landlords can deduct their costs (including mortgage interest) from their profits before they pay tax, giving them an advantage over other home buyers.
Therefore wealthier landlords received tax relief at 40% and 45%.
Since 6 April 2017, landlords have no longer been able to deduct all of their finance costs from their property income to arrive at their property profits.
To make the tax system fairer, the amount of Income Tax relief on costs (such as mortgage interest) is now restricted to the basic rate of tax.
The change was ‘phased in’ gradually from April 2017 over 4 years;
- 2017/18; Cost deduction 75%, 25% available at basic rate tax
- 2018/19; Cost deduction 50%, 50% available at basic rate tax
- 2019/20; Cost deduction 25%, 75% available at basic rate tax
- 2020/21; All costs restricted to basic rate reduction