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  • Writer's pictureMichael Roberts FPFS

Tax changes on Buy to Let Properties

Updated: Mar 21, 2020

The start of the new tax year saw further tax changes for landlords, with the amount of mortgage interest that can be offset against income cut from half to a quarter, and a corresponding increase in basic rate tax credit. From 6th April 2020, landlords will be restricted to basic rate tax relief only.

For higher rate taxpaying landlords with a mortgage, this could have a significant effect on the rent received from a property after tax, as you can see from the chart and example below.


In 2016/17 Jan owned a BTL residential property which produced rent of £18,000 a year. Interest on the mortgage she used to buy the property was £8,000 a year and expenses were £3,000 a year. If nothing else changes, as a higher rate taxpayer her net income will drop by 38% (£1,600) between 2016/17 and 2020/21. This £1,600 decline is due to the effective reduction in tax relief on her £8,000 interest bill from 40% to 20%.

As you can see, the net income after tax is much diminished compared to the 16/17 tax year.

Further changes are on the horizon for the 2020-21 tax year which starts next April:

  • Any capital gains tax (CGT) on residential property will become payable within 30 days of a sale, if that occurs on or after 6 April 2020. The payment will need to be accompanied by an interim tax return.

  • The period during which you can own two homes as main residences with neither of them being liable to CGT will be reduced in most circumstances from the current 18 months to just 9 months. In today’s slow housing market, that could cause problems in some circumstances.

  • Letting relief, which exempts up to £40,000 of gain from CGT if a main residence is let, will only apply if the owner remains in the property while it is let.


In the past, buy to let property has been the go-to solution for individuals with excess cash to invest. While this has served some investors well, the recent tax changes will make investors think twice about buy to let property in future. Proposed changes on rights for tenants is a further worry on the horizon.

We have long believed that the inflexibility of accessing returns from property, coupled with the hassle-factor of managing a property and tenants, makes buy to let property less than ideal for individuals in retirement. These recent tax changes, which sends a clear message that the government do not want to see property being used as an investment vehicle, further reduces the attractions for investors in our view.

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