April 2017: Buy-to-let mortgage tax changes. What investors need to know

April 2017: Buy-to-let mortgage tax changes. What investors need to know

In March 2015 the government announced a number of changes and restrictions it planned to implement within the buy-to-let (BTL) industry, in a bid to reduce levels of BTL finance and tackle the country’s housing crisis, by not restricting the supply of new owner-occupied homes.

What are the changes?

  • A cut to mortgage interest tax relief – from 45% to the basic rate of 20%
  • A lowering of capital gains tax to 10% for all investments except property, which remains between 18% and 20%
  • A reform to the 10% wear and tear allowance. Landlords now have to provide proof of bills relating to property repairs in order to receive a deduction from tax.
  • 3% hike in stamp duty on buy-to-let properties.


In the time since these changes were first announced, some, such as the 3% increase to stamp duty, have already come into effect, while others will be gradually implemented over the course of the next few years.

April 1st will mark the beginning of reductions to tax relief on the mortgage interest of buy-to-let properties, which is currently estimated to cost the UK £6.3 billion a year.

Unlike homeowners, from whom tax relief was withdrawn over 15 years ago, under the current tax system landlords can deduct costs they incur when calculating the tax payable on their rental income. This includes those costs relating to interest payments on their mortgage.

On April 1st however, buy-to-let investors will lose this tax advantage, as the government begins the gradual scaling back of tax relief from the current rate of 45% to the basic rate of 20% by 2020.

In addition, with a view to reducing the sheer volume of mortgage tools available in the BTL sector, the government has now granted powers to the Bank of England regarding the overseeing of the buy-to-let sector, which will ultimately make it far more difficult for individual investors to acquire the funding they need.

How do these changes affect you, the private investor?

Under the new tax rules, investors will no longer be able to offset the full cost of their mortgage. As an individual investor receiving £18,000 a year in rent and paying £12,00 a year in mortgage interest, you could previously deduct the full interest amount. From April however, you will only be able to deduct £9,000, paying tax on profits of £9,000 instead of the £6,000 you would have paid prior to the changes.

Build-to-rent: The future of investment property and the PRS

As the size of the UK’s PRS reaches record levels, the government is working to restrict investment in buy-to-let, and entice institutions back into the housing market. With a view to increasing the supply of good quality, well managed homes, the government have launched the build-to-rent (BTR) scheme, which will kick start the delivery of purpose-built rental homes in city centre locations.

Once the preeminent UK residential investment, BTL stock is becoming increasingly outdated and unsuitable for the needs of modern tenants living in the ever-increasing private rented sector. A rapidly growing sector, BTR is delivering properties designed with the tenants needs and lifestyle in mind. As a result, 2017 is expected to see a significant number of tenants move away from the property offerings of private landlords, with BTR instead becoming the preferred choice among those renting within the

How will the buy-to-let market react?

Since the changes were announced, the volume of loans for BTL purchases has decreased dramatically, with January recording an eight-month low, while the latest figures from the Council of Mortgage Lenders (CML) revealed a significant drop in the amount would-be landlords borrowed to buy new homes, down to £800 million from the £1.4 billion recorded for the same period last year.

The number of people taking out mortgages on BTL properties also fell in January, to 5,900, down from 9,700 recorded in January 2016. Many believe the new measures could see many more landlords forced out of the market, particularly those who rely solely on tax breaks as opposed to high yields.

Moving forward, property will continue to remain an attractive option to many investors, with bricks and mortar offering a great alternative to equity-heavy portfolios. High levels of diversification and a track record of capital growth that outpaces inflation will  ensure property’s long-term appeal is not diminished, however, private investors will need to adapt to the changes and look for other avenues into the market, such as build-to-rent, to maximise their rental returns.

Find out more about combatting cuts to the buy-to-let sector and maximising your rental returns by downloading our Quick guide: Property investment after April’s buy-to-let changes.

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