Rude Awakening for Landlords as Tax Year Ends

Rude Awakening for Landlords as Tax Year Ends

Abigail Staniforth
26th March 2018

Landlords could be in for a rude awakening next month when they come to file their 2017/18 taxes, as research conducted by BDRC Continental on behalf of Kent Reliance has found 15 %  don’t fully understand the implications of the new tax changes.

Who Will They Affect?

The changes affect landlords with mortgages on rental property. Previously, the interest element of monthly repayments could be off-set against tax – meaning landlords wouldn’t pay tax on the interest. Now, the amount of tax relief on that interest has been reduced.

Due to this reduction, more of a landlord’s income will be taxable, which could push them into a higher tax band, which in turn would mean them having to pay more tax overall.

Don’t Put It Off

Any rent received between 6th April 2017 – 5th April 2018 must be declared by law to HMRC, but the tax doesn’t have to be paid until the following January (2019). Leaving it until January to work out tax liability and pay what is due is not advisable as by then, more changes will have come into effect.

Hannah McCartan, MD of McCartan Lettings, comments “The problem with tax is that it is always based on historic figures, so it can be difficult to plan ahead – however, a forward-thinking accountant will be able to give you options how to plan for your future bills, and help you to make sense of how upcoming regulations could affect you.

In a bid to help all of the landlords on our management service, McCartan Lettings will be sending out a free consolidated Statement of Account after 6th April 2018 to help our landlords submit their accounts early.”

Seeking Professional Advice

Back in October, Hannah met with Richard Reeves of Morgan Hemp Accountants in Swansea, to discuss tax changes and what they mean for landlords.

Richard explained, “While the measure only affects higher and additional rate taxpayers, this bracket includes a significant amount of landlords.

The new legislation will result in more landlords being pushed into higher rates of tax due to the way the relief on mortgage interest will now be calculated under the new legislation. This measure also affects those residential landlords who are more highly geared i.e. with a medium to high percentage of mortgages/loans.”

Below is an example of how the change would affect a landlord with a £40,000 per annum employment and a rental portfolio which is highly geared:

Before Changes (2016/2017) After Changes (2020/2021)
Employment Income 40,000 40,000
Gross Rents Received 100,000 100,000
Other Rental Costs 20,000 20,000
Loan Interest 70,000 70,000
Taxable Rental Profit 10,000 70,000
Gross Taxable Income 50,000 120,000
Personal Allowance 11,000 nil
Tax Due, Basic Rate @ 20% 6,400 6,4000
Tax Due, Higher Rate @40% 2,800 35,200
Total 9,200 41,600
Less Interest Relief @20% nil 14,000
Next Tax Liability 9,200 27,600


The underlying rental profit is unchanged at £10,000, but the tax payable increases by £18,400. £4,400 of this increase is due to loss of the tax free Personal Allowance as, in this example, the taxable income is now £120,000 rather than £50,000.

Other Consequences

Richard warned of other potential tax consequences as a result of the changes that could now come into play:

  • The High Income Child Benefit Tax Charge may have to be paid if the taxpayer is in receipt of Child Benefit and taxable income exceeds £50,000.
  • Student Loans repayments will increase as a result of the increase in taxable income.


If you are looking for a letting agent that goes above and beyond for their landlords, please don’t hesitate in contacting us on 01792 430100, or drop us an email by clicking here.

Richard and his team at Morgan Hemp offer a free 30 minute consultation.  They are one of South Wales’ leading accountants, tax and business providers. Give them a call on 01792 466428 or email Richard directly at richard.reeves@morganhemp.co.uk, and let them know you have read my article!

Disclaimer: the information presented in this article is with information title only. Each landlord’s situation is unique, and you should seek professional tax advice before implementing any measures. The information in this article is not intended to be a source of tax advice.

Source: Landlord Knowledge

Related: Get Your Receipts in Order / Should Swansea Landlords Incorporate?

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