Landlords unaware of impact of new property tax, accountants warn

By Anita Jaynes on 5 October, 2015

Property landlords are facing huge cuts to their income thanks to new taxation rules, but many remain unaware what is about to hit them.

And the impact of the changes will be so severe that in some cases landlords could end up losing money.

That’s the warning from Swindon-based chartered accountants Banks BHG, following tax increases for buy-to-let properties which were revealed in the July Budget. The changes, on which there was no consultation, will be phased in from 2017 and fully implemented by 2020.

“Even now, many investors either remain unaware of the changes, or underestimate their severity,” said Banks BHG Head of Tax Paul Gosling. “When the announcement was made, the Chancellor George Osborne implied that the extra tax would hit only higher-earning landlords and it is true that every mortgaged landlord who pays 40 per cent or 45 per cent tax will pay much more under his proposals.

“But some basic-rate taxpayers will also pay more tax, because the change will push them into the higher-rate bracket. In fact, it would appear that only buy-to-let investors who are able to buy property in cash and/or who don’t need a mortgage can be sure to remain unaffected.”

Paul said the tax changes would not just eat into landlords’ rental income; they had the potential to wipe out any profit – or, worse, result in them making a loss.

The Chancellor’s new rules entail removing landlords’ right to deduct the cost of their mortgage interest from their rental income when they calculate a profit on which to pay tax. In other words, tax will be applied to the gross rent received, rather than what is left of the rent after the mortgage interest has been paid.

For example, a landlord who is a 40 per cent taxpayer, with a £20,000 annual rental income and yearly mortgage payments of £13,000, currently makes a profit of £4,200. By 2020, under the new rules, the tax bill will have increased by 93 per cent, and the profit cut to £1,600.

Paul added: “It’s clear that these changes have huge implications or buy-to-let investors and those considering entering the market.”

More information on the landlord tax is on Banks BHG’s website at, or email Paul Gosling on