The significant increase in borrowing costs is putting pressure on buy-to-let profits, especially as many tax benefits for landlords have disappeared.
Buy-to-let interest rates have more than doubled within a year, resulting in reduced profit margins for investors with mortgages.
Those with expiring fixed-rate deals will be significantly impacted, and increased mortgage costs make it harder for new landlords to enter the market.
Higher interest rates, combined with recent tax changes, have further complicated matters. As of 2020, landlords owning properties under their names can no longer deduct all interest bills from rental income for tax purposes.
Landlords must now pay extra attention to their finances, including taxes.
In addition to our full property portfolio tax calculator, We have created the following quick buy to let tool to show how much profit to expect when adding a property to your portfolio - or if you're thinking about letting your first property.
Adjust your details above and the calculation will automatically refresh!
Show figures in:
Although some tax breaks have disappeared, underused tax reliefs are still available for those who know where to look.
Landlords can claim back property maintenance and operation costs by deducting them from rental income when filing a tax return.
These expenses include insurance, letting agent fees, and payments to cleaners and gardeners, as well as less tangible costs like travel between rental properties and property-related phone calls or texts.
Deducting these expenses can make a significant difference. To qualify for these deductions, ensure that the expenses are "wholly and exclusively" for business purposes.
Keep in mind that property repairs do not include making improvements, and such costs cannot be deducted.
Landlords can also claim a £1,000 property allowance each year in tax-free rental income. If you co-own a buy-to-let property with someone else, both parties can claim the allowance. However, you cannot claim both the property allowance and rental expenses – you must choose one.
If your rental expenses for the year are less than £1,000, claiming the property allowance would be more beneficial. If your rental income is under £1,000 a year, the entire amount is tax-free and doesn't need to be declared to HMRC. However, any amount over the threshold must be declared, and allowances must be actively claimed.
Additionally, homeowners who rent out a furnished room in their main home can benefit from the Rent a Room scheme, which offers a £7,500 tax-free allowance on rental income. If the income is shared jointly, the allowance is split into £3,750 each.
If you plan to rent a room in your main home and have a residential mortgage, ensure you receive permission from your lender first, as not informing them can lead to serious consequences.