The government has announced plans to significantly decrease tax relief for Buy-to-Let properties.
Universal 20% tax credit
At present, all mortgage interest can be offset against income at the marginal rate and all investors can also automatically offset costs to the value of 10 per cent of their rental income every year.
Under the new system, owners will only be able to claim for costs they actually incur. They will no longer be allowed 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.
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Regulations curb runaway sector
The UK’s housing shortage is forecast to reach one million homes by 2022. These new regulations are aimed at freeing up residential properties for families and professionals, and come soon after the government’s increase of stamp duty responsibilities for the purchase of a second residential property.
These rules, presented in the 2016 Budget, will gradually come into effect between now and 2021. They only apply to residential property, and will not impact non-residential alternatives – like Purpose Built Student Accommodation and Serviced Apartments.