Landlords guide to tax changes

Becoming a buy-to-let Landlord can be a profitable investment, but to help prevent your asset from turning into a financial burden you should be aware of your tax liabilities, tax relief and any exemptions. Here's our landlords guide to the stamp duty and buy-to-let tax changes.

What are the buy-to-let tax changes for Landlords?

In April 2016, the UK government imposed a three percent increase on stamp duty for second homes and in April 2017, a cut in tax relief on mortgage interest payments for buy-to-let Landlords. For many people, the effect of these changes has been to increase the costs of becoming a buy-to-let Landlord.

How much is stamp duty for Landlords?

Here is a summary of the buy-to-let tax brackets since the changes in April 2016. Note that houseboats, caravans and homes costing under £40,000 are exempt from stamp duty.

Landlords Insurance
Tax Band Standard Rate Rate for Landlords
 Up to £125,000  0%  3%
 Up to £125,001 - £250,000  2%  5%
 Up to £250,001 - £925,000  5%  8%
 Up to £925,001 - £1.5 million  10%  13%
 Over £1.5m  12%  15%

How much tax relief do Landlords get?

Since April 2017, the tax relief on Landlords finance costs – including mortgage, loan or overdraft interest – has gradually been reduced. By 2020, the amount of income tax relief landlords can get on their residential property finance costs will be restricted to the basic tax rate (currently 20%). In the past, Landlords could claim an allowance for ‘wear and tear’ furnishing costs, but as of April 2017, you only get relief on actual costs. You will need to provide itemised receipts showing what items you have replaced.

Is it still worth becoming a buy-to-let Landlord?

While the tax changes have led to a drop in the number of homes bought by buy-to-let Landlords, it can still be an attractive investment. Since the tax changes, lenders have offered some of the lowest buy-to-let rates on record, often with early repayment charges that decrease over time, which means many long-term investors are well-placed to make gains. Moreover, when the government implemented the tax changes it forecast that 82% of landlords would not have any additional tax to pay because their total income without a deduction for finance costs would not exceed the higher rate threshold.

The importance of Landlord Insurance

When you become a buy-to-let landlord, the importance of getting Landlords Insurance cannot be overstated. Landlords Insurance gives you financial protection in the event your home is damaged by incidents such as fires, storms, flooding and subsidence. Whilst Landlords Insurance isn’t mandatory, you may struggle to get a buy-to-let mortgage without it and your regular Home Insurance won’t necessarily cover your property.