Currently buy to let landlords can claim tax relief on monthly interest repayments at their personal level of tax which at the top level can be 45% saving a considerable amount of money on mortgage interest relief.
Following last year’s June budget this is to change to 20% phased in over a 4 year period from April 2017.
The object of the exercise is to prevent buy to let landlords being at an advantage over first time buyers as mortgage interest relief was withdrawn from home owners 15 years ago.
The measure is thought to almost double the effective cost of borrowing for a tax payer on the highest rate of tax.
Closer examination of documents also revealed that the current system that allows landlords to claim 10% of their rent for wear and tear will be scrapped. From April 2016 landlords will only be able to deduct costs they actually incur.
One element of bright news is that “lodger landlords” will in fact be able to earn more. The income from lodgers can now be as much as £7,500 instead of the previous £4,250 before tax.