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 when compared to the previous tax system.
All figures used are for illustrative purposes only. From April 2017, the income tax payable in Scotland differs from England and Wales. This example assumes a main residency of England/Wales.
|Previous 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 (40%)||£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.