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Buy to Let Property – what do you need to know about tax changes?

The Key changes

Wear and Tear Allowance

From 6 April 2016 the 10% wear and tear allowance will no longer be available. The allowance was calculated as 10% of rental turnover, with adjustments for any utility/rates costs borne by the landlord.

As an example, a landlord with rental income of £7,500 will see their taxable rental profits increase by £750 for the 2016-17 tax return

From 6 April 2016 landlords are only able to deduct the actual costs of replacing furnishings (any improvement element will be be disallowed).

Tax relief is given against a landlord’s rental income for:

Relief is given for ‘domestic items’ which includes:

Items must be provided solely for the use of the tenant within the residential property. Relief is not available if rent a room relief (renting a room in your own property) is claimed.

Interest rate restriction for higher tax earners (2017-18 tax return onwards)

Landlords will no longer be able to deduct all of their finance costs from their property income.  Instead they will receive a basic rate tax reduction from their tax due (see illustration below).

New rules are being phased in from 6 April 2017 :



£95,000 salary

£20,000 rental turnover and £15,000 interest costs

£11,000 personal allowance

Taxable income: £95,000 + £20,000 – £15,000 – £11,000 = £89,000

£32,000 @ 20% + £57,000 @ 40% = £29,200 tax


Same salary and rental figures

Gross income: £95,000 + £20,000 = £115,000

Personal allowance affected (income over £100,000) so only £3,500 (goes down by £2 for every £1 that income is over £100,000)

Taxable income: £95,000 + £20,000 – £3,500 = £111,500

£32,000 @ 20% + £79,500 @ 40% – £15,000 @ 20% (this is the interest given basic rate relief) = £35,200 tax

2016/17: £29,200 tax versus 2020/21: £35,200 tax – £6,000 higher!

Digital records

Landlords with rental turnover over £10,000 will need to invest in an accounts system that can send quarterly records to HMRC from April 2020. This will be an additional cost to the business of renting property as an unincorporated business.

If you would like to talk more about the changes to let property and how it might affect you, please call or drop me an email.