8th January 2018

The last few years have been a boom time for buy-to-let landlords, with rental properties in high demand.

However, in 2015 the then Chancellor, George Osborne, introduced measures that he hoped would ‘level the playing field’. To deter more buy-to-let landlords from entering the market and encourage some to sell their properties, he restricted the tax concessions available on their mortgage interest payments, hoping that this would mean that more entry-level properties would be freed up for first-time buyers.

 The changes start to bite

These tax changes mean that buy-to-let landlords, accustomed to claiming relief worth 40% or 45% will find their relief restricted to the basic rate of 20% once the changes are fully implemented in 2020. The tax relief that landlords of residential properties get for finance costs will be restricted to the basic rate of income tax, phased in from April 2017. This figure decreases by 25 percentage points each year until none can be accounted for in 2020-21, although a 20% tax credit will help. In addition, the 10% wear-and-tear allowance was discontinued from April; landlords can now only deduct the costs they have incurred.

This came on top of changes in Stamp Duty Land Tax (SDLT). From April 2016, anyone purchasing an additional residential property for £40,000 or more pays a surcharge of 3%. So, a landlord who bought a property for £200,000 prior to April 2016 would have paid just £1,500 SDLT. Now, a landlord purchasing the same property would see their bill rise to £7,500. Similar rules were adopted for Land and Buildings Transaction Tax in Scotland.

Effects being felt in the market place

Data from the Association of Residential Letting Agents1 suggests landlords seeing their rental yields fall are beginning to press their tenants for higher rents to cover their costs and income shortfall. In November 2016, only 16% of agents saw landlords increasing rents, but that figure has risen to 35%, and is widely expected to rise further over the coming months. Clearly, following the recent rise in interest rates, more landlords will be endeavouring to offset their rising costs by raising rents.

In addition, lenders have introduced more stringent vetting procedures for buy-to-let mortgages where landlords already own four or more mortgaged properties. This may give rise to further changes in the dynamics of the buy-to-let market.

 The Financial Conduct Authority does not regulate Commercial Buy-to-Let mortgages & Tax advice

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.


1ARLA (Association of Residential Letting Agents) Propertymark, Private Rented Sector report, August 2017