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Mortgage interest tax relief limited for buy-to-let landlords

Buy-to-let landlords will only be able to offset mortgage interest at the basic rate of tax by 2020, Chancellor, George Osborne has announced at today’s Summer Budget 2015.

At present, landlords pay income tax on the rent they recoup by declaring the amount they earn on a Self-Assessment tax return.

The tax is charged in line with their normal income tax banding – which stands at 20 per cent for basic-rate taxpayers, 40 per cent for higher rate taxpayers and 45 per cent for additional-rate payers.

The wealthiest landlords receive tax relief at 40 per cent and 45 per cent but the Chancellor’s rule change means tax relief will be capped at 20 per cent for all landlords.

Mr Osborne says the move has been made to create a “level playing field” between prospective landlords and those buying their homes to live in.

“Buy-to-let landlords have a huge advantage in the market as they can offset their mortgage interest payments against their income, whereas homebuyers cannot,” said Osborne.

“And the better off the landlords, the more tax relief they get.”

The Chancellor said this had contributed to the rapid growth in buy-to-let properties across the country, which reportedly accounted for 15 per cent of all mortgages taken out this year.

“So we will act – but we will act in a proportionate and gradual way, because I know that many hardworking people who’ve saved and invested in property depend on the rental income they get,” added Osborne.

Osborne also confirmed that from April 2016, the existing ‘wear and tear’ allowance will also be replaced. The allowance lets landlords reduce the tax they pay whether or not they replace furnishings in their property.

A new system will be implemented in its place to only allow tax relief for landlords when they actually replace furnishings.

Matt Hutchison, director,, believes the capping of mortgage interest relief could have “potentially huge implications” on affordable rental accommodation.

“There are an estimated 19 million empty bedrooms in owner-occupied properties in England alone. Freeing up just five per cent of those rooms would accommodate almost a million people – the equivalent of a city the size of Birmingham,” said Hutchison.

“Encouraging people to take in lodgers could help them avoid repossession when interest rates rise and their mortgage repayments are adjusted.

“Lodger landlords can earn, on average, £8,335 per year in London, and £6,071 across the rest of the UK.”

Image: David Wright

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