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Buy to Let Tax Calculator...

See how the new tax changes on buy to let properties will reduce your profit and how much tax you will need to pay.

Please enter your appropriate tax rate:
Please enter your total monthly rental income:
Please enter your total monthly service charges/running costs:
Please enter your total monthly mortgage interest:
If you’re a buy-to-let landlord, you must be feeling as if someone’s got it in for you. The recent Budget slashed tax relief, and then the Autumn Statement added extra stamp duty. How could it hit your profits and what can you do about it?
Suddenly your property portfolio may not look so shiny. In two successive moves no-one saw coming, Chancellor George Osborne announced that tax relief on buy-to-let mortgage interest payments would be slashed (phased in from April 2017) and that buy-to-let properties (and second homes) would incur an extra 3 per cent stamp duty.

But here’s the thing. Once one of those things ceases to be true, the sums change fast. In his last two statements, George Osborne has changed those numbers. In the middle of last year he announced that the current system of tax relief for buy-to-let investors, whereby all mortgage interest could be offset against income at the marginal rate and all investors could also automatically offset costs to the value of 10 per cent of their rental income every year, were to be changed.

When the changes are fully implemented (by 2020/21), investors will be able to charge only the costs they actually incur. But more significantly, they will no longer be able to offset interest directly against income. Instead, regardless of their marginal rate of tax, they will receive a tax credit to the value of 20 per cent of their mortgage costs to offset against income tax.


Here’s a quick look at how this works in practice with an example from Brewin Dolphin. A landlord paying tax at 40 per cent has an 80 per cent loan-to-value mortgage. He gets £10,000 in rent and pays £8,000 in interest. On his £2,000 profit he currently pays 40 per cent of £2,000 (£800) leaving him a net gain of £1,200. However, come 2020 his tax bill will be calculated on his turnover minus a 20 per cent tax credit. And 40 per cent of his £10,000 turnover is £4,000. The relief comes to 20 per cent of the interest (£8,000 × 20 per cent = £1,600). The result is a £2,400 tax bill. Add that to his mortgage interest and you will see that his annual profit of £1,200 has turned into an annual loss of £400. Nasty.
 
Most landlords won’t have mortgages that large but nonetheless you get the point: the changes turn the cash flows around fast. Play with the numbers and you will also see that they can turn 20 per cent taxpayers with property investments into 40 per cent taxpayers without too much difficulty. All this makes Osborne’s second move — announced in last year’s autumn statement — look particularly unpleasant for wannabe landlords. He’s put up stamp duty for anyone buying a second home — be it a holiday bolthole or a buy-to-let property. Buy after April and your property will cost you three percentage points more in stamp duty than it does now. If you are buying a house at, say, £300,000 that pushes the duty up from £5,000 to £14,000 — a rise of 180 per cent.
- Unbiased
Buy to let example


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