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
Mortgage £5,000   Costs £2,000
 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
16/17 100% 0% £1,200 £1,800
 17/18  75%  25%  £1,450  £1,550
 18/19  50%  50%  £1,700  £1,300
 19/20  25%  75%  £1,950  £1,050
 20/21  0%  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.