From 6 April 2017, many buy-to-let investors will see their tax liabilities rise significantly – please don’t be caught out.

In Brief

From this date, landlords of residential property will be prevented from claiming their mortgage interest and related finance costs. Instead, they will be entitled to a tax deduction equal to 20% of their finance costs (see our example below). The new measures are so draconian that the government has opted to phase them in over four years in an effort to limit the impact on the housing market.

Coming as they do straight after the government’s decision to remove the 10% wear and tear allowance from 6 April 2016, it is clear that the buy-to-let market is firmly in the cross-hairs.

The sting in the tail of these changes is that they not only impact on the individual’s income tax liability, but also on their Child Benefit and tax credits entitlements too.


Consider the implications for a typical buy-to-let investor:

  • Andrew is in full-time employment, with a salary of £40,000 a year;
  • He has two buy-to-let investments generating gross rent of £12,000 per year;
  • His mortgage interest amounts to £6,000 per year;
  • He has two children under 16 years of age.


Current Rules


New Rules




Employment income



Rental income



Mortgage costs



Rental profit







Tax liability



Interest “deduction”



Tax payable  





Not only will the new rules increase his annual tax bill by £1,200, they will also result in Andrew’s Child Benefit entitlement being partially withdrawn. As Andrew’s income would be £52,000 (for tax purposes) he would be asked for 20% of his Child Benefit entitlement in addition to the extra tax (£357 per year for a two-child family).

Taken together this would be an increase of £1,557 on his annual tax liabilities; giving an effective tax rate of 56% on his rental profits!

What Can I Do?

Depending on your personal circumstances there are a several options that may be worth considering.  This could involve transferring properties to a spouse or child or possibly a new limited company.

Contact Mark McKenna now on (0151) 489 1010 to see how we can help.


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