Letting out a property? Tax changes are now looming large.

April 2017 was a critical date for residential landlords, writes Mark Sheen, as it signalled the start of new restrictions on tax relief.

If you let out a property, your financial position will have changed from 6th April 2017. That’s because the government has restricted relief for finance costs on residential properties to the basic rate of income tax.

As a landlord, you will no longer be able to deduct all of your finance costs from your property income to arrive at your profits. Instead, you will receive a basic rate reduction from your income tax liability for your finance costs.

The new regime is being phased in over the next few years, so the relief you can obtain is as follows, according to HMRC:

  • in 2017 to 2018 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction
  • in 2018 to 2019, 50% finance costs deduction and 50% given as a basic rate tax reduction
  • in 2019 to 2020, 25% finance costs deduction and 75% given as a basic rate tax reduction
  • from 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction


If you’re a basic-rate taxpayer, there shouldn’t really be a problem, but it’s worth remembering that your status might depend on the current system. The changes may actually push you into the higher-tax bracket.

There can then potentially be knock-on implications. If, for instance, you or your partner receive child benefit and your income is over £50,000, you might have to pay a charge or opt out of the benefit.

There’s no doubt that the changes will affect many landlords very adversely and will lead some to question whether they want to invest further. It may be that others will decide in due course to sell, believing that it is difficult to make adequate profit from the buy-to-let market.

If you are concerned about the changes, it’s time to look closely at the implications with your accountant.