Buy-to-let calculator: how will new tax reduce your profit?
Telegraph Money has developed a sophisticated buy-to-let tax calculator to help you assess the impact of new taxes on your property investments.
George Osborne unveiled a shock tax change in 2015 which will remove landlords’ ability to deduct the cost of their mortgage interest from their rental income when they calculate a profit on which to pay tax. In effect, the Chancellor wants to tax landlords on their turnover rather than profit, meaning that tax will be payable on non existent income. For some, tax rates will exceed 100pc: landlords will have to pay all of their profit in tax, and then pay more tax still. The tax increase will be phased in from 2017 and fully implemented by 2020.
Findings: Smith & Williamson has calculated that any higher-rate taxpayer landlord whose mortgage interest is 75pc or more of their rental income, net of other expenses, will see all of their returns wiped out by 2020. So mortgage costs above 75pc of rental income will mean the buy‑to‑let investments become loss-making. For additional-rate (45pc) taxpayers, the threshold at which their investment returns are wiped out by the tax is when mortgage costs reach 68pc of rental income.
Some current basic-rate taxpayers will also be hit, because the change will push them into the higher-rate tax bracket. Very wealthy landlords who do not need mortgages will be untouched.
Telegraph Money has developed a buy-to-let tax calculator that gives an indication of how your profits will be affected by the new tax over the next five years.