Buy-to-Let Landlords: Be tax savvy and understand how to save tax

With interest rates at a 14-year peak, buy-to-let landlords are facing increased mortgage payments.

Moreover, since the tax year 2020/21, individual landlords can no longer deduct finance costs, including interest, from their residential rental income for tax purposes. Instead, tax relief is given as a 20% tax credit applied to the total tax bill. The amount of tax credit is calculated as 20% of the lower of finance costs, property profits, or adjusted total income.

Working example: Meet James the landlord with 2 rental properties

Meet James, a buy-to-let landlord, who's looking for a way to get tax relief now that he cannot claim full tax relief from his mortgage payments.

James had £13,500 trading profits and £3,000 rental income in 2021/22 with deductible expenses, including a significant repair, of £6,500 and mortgage interest charges of £4,000.

He claimed a property loss of £3,500 on his 2021/22 tax return, so no tax to pay, but potentially losing his 20% tax credit.

However, this was carried forward to the next tax year.

In tax year 2022/23, James’ situation improved with his property being let for £18,000, deductible expenses of £1,500, and interest payments of £6,000. His trading profits also increased to £26,000.

By using the carried-forward losses from last year from his property income PLUS the 20% tax credit not used in the previous tax year, James was able to pay less tax in 2022/23 when making a profit.

It’s easy when you know how, but if you are lost with tax planning as a landlord. we can help.