Big Tax Changes For Buy To Let Property

There have been some very big changes to the rules and tax rates for buy to let property over the last 4 years.

These changes began in 2016 when former Chancellor George Osborne introduced a raft of reforms specifically aimed at buy to let property. This made it more expensive to start a property portfolio, and less profitable to add to an existing one.

A downturn in profitability meant that the amount of money borrowed to invest in buy-to-let properties had plunged from £25bn in 2015 to just £5bn in 2017.

buy to let property

Changes for 2020

There are three big changes which will apply from April 2020

  1. Change To Capital Gains Tax Payment Dates
  2. Changes to Principal Private Residence Relief from April 2020
  3. Change To Restriction Of Mortgage Interest Relief

These changes will affect almost all sales of additional properties in the UK.

Capital Gains Tax Payment Dates

Any capital gains tax due on the sale of a buy to let property is currently paid through your self-assessment tax return. This meant that a property which was sold in the 2018/2019 tax year would be declared on a tax return with the tax to be paid by the 31st January 2020.

From April 2020, property owners will have to pay the full amount of any capital gains tax within 30 days of the sale.

Once more, Interest charges and penalties will apply if the tax is not paid within the 30-day limit.

Principal Private Residence Relief 

Currently, if you have previously lived in your property before letting it you are entitled to Principal Private Residence Relief when you sell the property.

Principal Private Residence Relief means you don’t pay any Capital Gains Tax for the period of time that you lived in the property and for 18 months after the date you moved out.

From April 2020 the extended time period will reduce to 9 months.

Additionally, lettings relief which you are currently entitled to if you let a property which was previously your main home will only apply to property owners who continue to live in the home and share occupancy with their tenants.

buy to let property

Restriction Of Mortgage Interest Relief

Restrictions to mortgage interest relief began in 2017, and have gradually increased since then. The changes were staged as follows:

  • 2017/18 only 75% of finance costs were deductible
  • 2018/19 the allowable costs were 50%
  • 2019/20 the allowable costs are 25%
  • 2020/21 no deductions will be allowable

From 6 April 2020, you will no longer be able to include mortgage interest or finance costs as a gross tax deduction.

However, an income tax reducer will be now be implemented against the landlord’s individual tax liability. 

This is calculated using whichever is the lower from the following:

  • 20% of the prescribed finance costs not already deducted from property income
  • the property business profits
  • total income (except income derived from investments) that exceeds the personal and blind persons’ allowance

For property owners who become higher rate taxpayers, this will push effective tax rates on property income to well over 50% by the year 2021.

Speak To An Expert

These new rules will affect ALL landlords selling properties, or those with mortgages or outstanding finance.

Whilst the amount of profit to be made from buy to let property has fallen, demand for rental property remains very high. This means there is still money to be made in the buy-to-let sector. 

There are still certain costs and exceptions which can be deducted from your capital gains tax, such as; stamp duty, buying and selling costs, estate agents fees and solicitor fees

Therefore, if you are planning to sell a buy to let property, then speaking with a professional adviser before April 2020 is strongly advised.

We can advise you on all of these changes, so get in touch with our friendly and helpful advisors at K.A.Farr & Co.