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
Mortgage£5,000 Costs£2,000
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
16/17 100% 0% £1,200 £1,800
17/1875%25%£1,450£1,550
18/1950%50%£1,700£1,300
19/2025%75%£1,950£1,050
20/210%100%£2,200£800

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.