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.