Buy To Let Tax Changes On The Way For Expat Investors


Buy to let tax changes in Britain are going to impact expats – but not as badly as many believe.

Landlords renting out homes in the UK are due to start losing the right to claim mortgage interest as a business expense to offset against rental profits from April 6.

The move has caused a stir in the UK, triggering a failed legal challenge in London’s High Court and a flood of protests.

But the government remains adamant the new rules will go ahead despite the arguments and lobbying.

The new mortgage interest relief rules phase out expense claims for landlords who are higher rate (40%) or additional rate (45%) taxpayers.

How the tax change impacts expats

Over the next three years, they will see their claims restricted to a final cap of 20% by 2020.

Financially, this means a landlord paying tax at the higher rate claiming £15,000 a year mortgage interest will see his tax offset fall from £6,000 this year to £3,000 in 2020.

The measure will impact expats in one of two ways –

  • Expat landlords who are UK tax resident earning more than £44,000 a year will see their tax relief restricted by the regulations
  • Expat landlords who are not UK tax resident must earn more than £44,000 a year in rental profits and other UK income for the new rules to affect their property businesses

How to avoid buy to let tax

Married expat couples with buy to let property can change their shares of ownership to minimise the impact of the rules as they each have a £44,000 allowance they can use before losing tax relief.

For example, if a couple own buy to let property jointly, but one partner’s UK taxable income exceeds £44,000 a year, while the other partner’s is £20,000 a year, they can reallocate the shares in the property to switch the income pro rata.

So instead of owning the homes 50:50, they can adjust the shareholding so the lower earning partner owns a larger share but still ensuring their total annual income does not breach the higher rate tax threshold.

Switching property ownership between spouses or civil partners is free of capital gains tax.

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