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 SystemNew SystemBuy to Let Tax BillNet Profit
16/17100%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 our tax relief changes calculator to help you understand how your profits could be affected by the new tax system.