Detailed phasing example of new tax system
The below example details how the phasing of the new tax system over a four year period (2017/18 to 2021/22) could affect a landlord’s net profit.
All figures used are for illustrative purposes only.
|Existing system (16/17)||New system (20/21)|
|Mortgage interest and other allowable costs can be deducted before calculating taxable profit||Mortgage interest can’t be deducted before calculating taxable profit|
|Rental income||£10,000||Rental Income||£10,000|
|Costs||£2,000||Taxable Income||£8,000||Taxable income||£3,000||Tax @ 40%||£3,200|
|Tax due||£1,200||Mortgage Interest Relief (20%)||£1,000|
|Buy to Let profit||£1,800||Tax Due||£2,200|
|Buy to Let Profit||£800|
Broken down year by year, the impact of the phased introduction of the new system for this example is as follows:
|Current 40% tax payer||Old System||New System||Buy to Let Tax Bill||Net Profit|
Download and share our tax relief changes calculator to help you and your clients understand how their profits could be affected by the new tax system.