How are the UK’s property tax rules changing?
At present landlords can claim monthly interest payments on their mortgages across a property portfolio as a business expense. But under the new scheme they will only be allowed a 20 per cent tax credit for mortgage interest, with serious implications for profit.
As an example if a buy-to-let property in your portfolio earns an income of £10,000 a year but you paid £8,000 interest then income tax would be due on £2,000 profit. If your income tax band is 40 per cent then you would owe £800.
Under the new rules you would owe tax on the £10,000, and could only claim a 20 per cent tax relief on the mortgage interest. Whilst lower rate taxpayers will pay the same in tax, higher and additional rate taxpayers will pay more.
The tax rate will now be calculated before the relief is deducted, so more landlords will find themselves in the higher rate tax-band.