Buy-to-let tax changes in 2022: everything you need to know

Keeping up with buy-to-let tax changes can be complicated - but as a property investor, understanding how best to approach tax could help you to increase your return on investment.

In recent years, the government has introduced new tax rules specifically aimed at buy-to-let landlords. It’s therefore important to know what you can expect to pay, and whether you’re entitled to things like mortgage interest tax relief.

In this article, we’re going to focus on everything you need to know about tax credit as a property investor, including how the latest buy-to-let tax changes could affect mortgage interest payments.

How can I reduce the tax on my buy to let property?

There are several ways landlords can reduce tax on buy-to-let properties. Some of the most popular strategies include:

Moving your property portfolio to a company

Moving your property to a company structure can be more tax-efficient than personal ownership. This involves essentially selling your property to a company in which you have a controlling interest as a director. There are capital gains and income tax benefits to doing so, although there are still some obstacles to navigate.

For example, property must be sold to your company at market rate, which involves an independent valuation for stamp duty land tax purposes. If a property is remortgaged, this will also require the consent of the lender. However, in the long-term, the dividends can prove beneficial.

Changing the split of ownership

Married couples and civil partners can amend the split of ownership on buy-to-let properties to enjoy tax benefits. As standard, HMRC splits rental income on the properties of married couples and civil partners on a 50/50 basis.

However, if one partner is in a lower tax bracket or is not making the most of their full personal tax allowance (as a stay-at-home parent for example), it could be a good idea to transfer a property entirely into this partner’s name in order to pay less tax.

What are the buy to let tax changes?

Tax rules are constantly changing, and it’s easy to miss some of the amendments to legislation. What follows are changes that landlords should be aware of in 2022:

Buy-to-let income tax rates

Everybody has an income tax personal allowance. This is the amount you are allowed to earn before you are expected to pay income tax. In 2022, this is set at £12,570, which represents an increase of £70 in comparison to 2021.

In 2022, landlords must pay 20% tax on buy-to-let income between £12,571 - £50,270. A higher-rate threshold of 40% applies to landlords with a rental income of £50,271 or over. The additional rate of 45% remains unchanged on income of £150,000 or more.

Extension on capital gains tax for property investors

Landlords now have 60 days to report/pay capital gains tax after the sale of a property. This has doubled from 30 days but remains significantly lower than the 22-month period which was in place prior to April 2020.

Digital tax for VAT-registered landlords

Property portfolio holders who own a VAT-registered business with a VAT threshold below £85,000 will be required to keep digital records and use accounting software to file tax returns. Digital tax returns will be required for all self-assessment taxpayers from April 2024.

How do I avoid capital gains tax on a buy to let property UK?

While it is impossible to fully avoid capital gains tax on buy-to-let properties in the UK, there are several ways you can help reduce your CGT expenditure. Some of the most popular strategies include:

  • Deducting the cost of improvement works that enhance the overall value of your asset (standard maintenance costs are not applicable here).
  • Set up a limited company (CGT only applies to the sale of a home owned by an individual).
  • Check whether you are entitled to Private Residence Relief (this only applies if you have lived in your buy-to-let property for a defined period).

Is mortgage interest tax deductible in 2022?

Prior to 2017, it was possible for buy-to-let landlords to deduct costs such as mortgage interest from rental income. HMRC began phasing out finance costs that could be deducted over a four-year period, while simultaneously introducing a new relief known as tax credit.

Tax credit came into full effect in April 2020. This means that mortgage interest is no longer deductible in 2022. Instead, landlords now receive a 20% tax relief on mortgage interest as standard.

Can I deduct mortgage from rental income?

As a landlord, property income allowance means you can earn up to £1,000 in rental income completely tax-free. If your rental income is £1,000 or less, you won’t have to declare or pay tax on this income. However, you cannot deduct mortgage costs from your rental income.

What can I claim as a landlord?

Landlords can offset certain allowable expenses against pre-tax profits. Allowable expenses cover funds that have been spent exclusively for the purposes of renting out a property. This broadly covers any expenditure in relation to the maintenance and upkeep of a property. Some examples of landlord’s allowable expenses include:

  • Water rates, utility bills and council tax (if you cover them as a landlord).
  • Insurance costs (landlord’s building insurance and contents insurance).
  • Service costs (cleaners, gardeners and ground rent).
  • Some property management/letting agent fees.
  • General maintenance/refurbishment costs.

Is the mortgage interest 100% tax deductible?

Mortgage interest is no longer 100% tax deductible in 2022. While landlords still receive relief on mortgage interest payments, it is at a reduced rate in comparison to figures prior to April 2017. Relief on mortgage interest payments starts at 20%.

Use PropertyData to keep up to date with the latest property tax changes

Tax laws for buy-to-let property owners change regularly, and as a property portfolio holder, it is your responsibility to ensure that you’re compliant with all current legislation. With access to PropertyData’s tools and information, you can ensure that you’re up to date with all current tax regulations.

In addition to this, you’ll also gain valuable insights into property prices by postcode, including real-time valuations and price monitoring. Why not start your free two-week trial and start making better property investment decisions today?

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Transparent data promise

Where does the raw data come from?

Property listings seen on rightmove.co.uk, zoopla.co.uk and onthemarket.com.

How often is the data updated?

The data is updated in near real-time.

What time period does the data cover?

This is a real-time market snapshot - the data covers currently listed properties. Once properties are removed from the portal, they are soon removed from this tab.

How is the raw data processed?

Duplicates from multiple sources are matched and reconciled as far as possible. Listings with obvious errors, where price or number or bedrooms appear out of range, are discarded.

What are the statistics used?

Averages shown are the interquartile mean, a type of average that is insensitive to outliers while being its own distinct parameter. The 80% range means that 80% of the listed properties fall inside this range.

Where does the raw data come from?

Property listings seen on rightmove.co.uk, zoopla.co.uk and onthemarket.com.

How do you know the square footage of properties?

We use proprietary technology to read the square footage of properties from agent floorplans. Although we cannot determine the square footage for all properties, we can usually get sufficient coverage. Agents are sometimes known to inflate square footage, and this should be borne in mind as a weakness of this data.

How often is the data updated?

The data is updated in near real-time.

What time period does the data cover?

This is a real-time market snapshot - the data covers currently listed properties. Once properties are removed from the portal, they are soon removed from this tab.

How is the raw data processed?

Duplicates from multiple sources are matched and reconciled as far as possible. Listings with obvious errors, where price or number or bedrooms appear out of range, are discarded.

What are the statistics used?

The average shown is the interquartile mean, a type of average that is insensitive to outliers while being its own distinct parameter. The 80% range means that 80% of the listed properties fall inside this range.

Where does the raw data come from?

Property "price paid" data provided by the Land Registry.

How often is the data updated?

Once per month when released by the Land Registry, typically towards the end of each calendar month covering up to the end of the previous calendar month.

What time period does the data cover?

You can customise the time period using the filter at the top of the view. The default time period is up to 9 months back from today's date. The latest data covers the period up to 2022-03-31, although some sales that took place before this date may still be added in the coming months.

How is the raw data processed?

No additional processes are applied to this data.

What are the statistics used?

Averages shown are the interquartile mean, a type of average that is insensitive to outliers while being its own distinct parameter. The 80% range means that 80% of the listed properties fall inside this range.

Where does the raw data come from?

Property "price paid" data provided by the Land Registry, and Energy Performance Certificate (EPC) data provided by Ministry of Housing, Communities & Local Government.

How do you know the square footage of properties?

We match the Land Registry data to EPC data provided by the MCHLG. Due to the fact that not all properties sold have had an EPC and vagaries of addressing in the UK, we are not able to determine the square footage of all properties, but we can usually get sufficient coverage.

How often is the data updated?

The private paid data is updated once per month when released by the Land Registry, typically towards the end of each calendar month covering up to the end of the previous calendar month. The energy performance certificate database is updated monthly.

What time period does the data cover?

You can customise the time period using the filter at the top of the view. The default time period is up to 9 months back from today's date. The latest data covers the period up to 2022-03-31, although some sales that took place before this date may still be added in the coming months.

How is the raw data processed?

No additional processes are applied to this data.

What are the statistics used?

The average shown is the interquartile mean, a type of average that is insensitive to outliers while being its own distinct parameter. The 80% range means that 80% of the listed properties fall inside this range.

Where does the raw data come from?

Property listings seen on rightmove.co.uk, zoopla.co.uk and onthemarket.com.

How often is the data updated?

The data is updated in near real-time.

What time period does the data cover?

This is a real-time market snapshot - the data covers currently listed properties. Once properties are removed from the portal, they are soon removed from this tab.

How is the raw data processed?

Duplicates from multiple sources are matched and reconciled as far as possible. Listings with obvious errors, where price or number or bedrooms appear out of range, are discarded.

What are the statistics used?

The average shown is the interquartile mean, a type of average that is insensitive to outliers while being its own distinct parameter. The 80% range means that 80% of the listed properties fall inside this range.

Where does the raw data come from?

Room let listings on SpareRoom, the UK's biggest room letting website.

How often is the data updated?

The data is updated in near real-time.

What time period does the data cover?

This is a real-time market snapshot - the data covers currently listed properties. Once properties are removed from SpareRoom, they are soon removed from this tab.

How is the raw data processed?

Listings with obvious errors, where price or number or bedrooms appear out of range, are discarded.

What are the statistics used?

The average shown is the interquartile mean, a type of average that is insensitive to outliers while being its own distinct parameter. The 80% range means that 80% of the listed properties fall inside this range.

Where does the raw data come from?

Property listings seen on rightmove.co.uk, zoopla.co.uk and onthemarket.com.

How often is the data updated?

The data is updated in near real-time.

What time period does the data cover?

This is a real-time market snapshot - the data covers currently listed properties. Once properties are removed from the portal, they are soon removed from this tab.

How is the raw data processed?

Duplicates from multiple sources are matched and reconciled as far as possible. Listings with obvious errors, where price or number or bedrooms appear out of range, are discarded. Yields are calculated by comparing only properties with the same number of bedrooms, e.g. 3-bedroom properties for rent with 3-bedroom properties for sale.

What is the yield calculation used?

The calculation used is (average_weekly_asking_rent * 52 / average_asking_price), expressed as a percentage. It is a top-line gross yield, meaning no expenses are considered.

What are the statistics used?

The average shown is the interquartile mean, a type of average that is insensitive to outliers while being its own distinct parameter. The 80% range means that 80% of the listed properties fall inside this range.

Where does the raw data come from?

Property listings seen on rightmove.co.uk, zoopla.co.uk and onthemarket.com.

How often is the data updated?

The data is updated in near real-time.

What time period does the data cover?

This is a real-time market snapshot - the data covers currently listed properties. Once properties are removed from Zoopla, Rightmove or Spareroom, they are soon removed from this tab.

How is the raw data processed?

Duplicates from multiple sources are matched and reconciled as far as possible. Yields are calculated by comparing only properties with the same number of bedrooms, e.g. 3-bedroom properties for rent with 3-bedroom properties for sale. For the SpareRoom data, hypothetical properties consisting of two to six average double rooms with shared bathrooms are used to derived average rent. For all sources, listings with obvious errors, where price or number or bedrooms appear out of range, are discarded.

What is the yield calculation used?

The calculation used is (average_weekly_asking_rent * 52 / average_asking_price), expressed as a percentage. It is a top-line gross yield, meaning no expenses are considered.

What are the statistics used?

The average shown is the interquartile mean, a type of average that is insensitive to outliers while being its own distinct parameter. The 80% range means that 80% of the listed properties fall inside this range.

Where does the raw data come from?

Property "price paid" data provided by the Land Registry.

How often is the data updated?

Once per month when released by the Land Registry, typically towards the end of each calendar month covering up to the end of the previous calendar month.

Zoopla Zed-index

What time period does the data cover?

The data covers transactions in the last six years

How is the raw data processed?

No additional processes are applied to this data.

What are the statistics used?

The average shown is the interquartile mean, a type of average that is insensitive to outliers while being its own distinct parameter. The 80% range means that 80% of the listed properties fall inside this range.

Where does the raw data come from?

Property listings seen on rightmove.co.uk, zoopla.co.uk and onthemarket.com.

How often is the data updated?

The listings data is updated in near real-time. The Land Registry data is updated once per month when released, typically towards the end of each calendar month covering up to the end of the previous calendar month.

What time period does the data cover?

The price paid data shown goes back to January 2015. The listings data is a real-time market snapshot - the data covers currently listed properties. Once properties are removed from the portal, they are soon removed from this tab.

How is the raw data processed?

Duplicates from multiple sources are matched and reconciled as far as possible. Listings with obvious errors, where price or number or bedrooms appear out of range, are discarded.

What are the calculations used?

Average sales per month are for the last 3 finalised months. Turnover is average sales per month divided by total for sale. Inventory is 100 divided by turnover.

Where does the raw data come from?

Property listings seen on rightmove.co.uk, zoopla.co.uk and onthemarket.com.

How often is the data updated?

The listings data is updated in near real-time. The Land Registry data is updated once per month when released, typically towards the end of each calendar month covering up to the end of the previous calendar month.

What time period does the data cover?

This is a real-time market snapshot - the data covers currently listed properties. Once properties are removed from the portal, they are soon removed from this tab.

How is the raw data processed?

Duplicates from multiple sources are matched and reconciled as far as possible. Listings with obvious errors, where price or number or bedrooms appear out of range, are discarded.

Where does the raw data come from?

We receive data on the extent and corporate ownership of all land titles in England & Wales from the Land Registry.

How often is the data updated?

The data is updated once per month when released, typically in the first few days of each calendar month.

What time period does the data cover?

This is an ownership snapshot - the data represents ownership as recorded by the Land Registry at the last monthly export.

How is the raw data processed?

No additional processes are applied to this data.

Where does the raw data come from?

We source different expert forecasts Savills, Knight Frank, OBR

How often is the data updated?

The data is updated annually when new forecasts are released, typically towards the beginning of the year.

How is the raw data processed?

We calculate a consensus forecast using a simple mean average.