The confusion and uncertainty of the last few months has made it easy to forget the upcoming changes to the buy-to-let sector, which are set to affect certain higher-earning landlords’ tax arrangements.

Landlords who own residential properties as private individuals can currently claim income tax relief on the total cost of finance on those properties, such as interest on mortgages and loans.

However, under new changes being gradually introduced from April 2017, the way this relief is calculated will alter, and it will be restricted to the basic rate of tax (currently 20 per cent).

Landlords need to be aware that, under the new system, finance costs will no longer be deducted from profit for the purposes of calculating income tax liability.

Instead, they will receive a tax reduction equivalent to their debt costs, multiplied by the basic rate of income tax.

Some property investors may therefore find themselves in a higher tax band than they would have been under the current rules. The costs of such a change for higher rate and additional rate taxpayers could be considerable, while for basic rate taxpayers there should be no net change.

The tax reduction will be calculated as a proportion of each individual’s finance costs, total income or property profit, depending on which is lowest.

Only private individuals and partnerships will be affected. The changes do not apply to companies or to properties which are furnished holiday lettings. It is therefore worth seeking advice on whether the ownership structure of your rental properties is still appropriate to your circumstances.

Milsted Langdon’s expert property tax team is well placed to help landlords and property investors ensure all their tax affairs are in order.

We can also help you make best use of all available reliefs and manage all your submissions to HMRC.

Please visit our property tax page for further information

Download our guide to Residential Property Letting

Link: Changes to tax relief for residential landlords