When hefty tax changes for landlords were announced three years, they seemed a long way off.
But they are now fully underway, with the second phase being introduced this month. Here's what landlords need to know.
Back in 2015, the Government announced it would reduce the tax relief on mortgage interest over a four-year period. The tax relief would be tapered down and replaced with a 20 per cent tax credit by 2020.
The first reduction was introduced a year ago, with the second now following, having been introduced on April 6 of this year.
It means landlords will see a total 50 per cent reduction in the tax relief they can claim against their mortgage interest. This could potentially mean significant amount of extra tax being paid by both basic and higher rate property investors.
The tax changes were introduced by the Government in a bid to tip the scales away from landlords towards first-time buyers, many of whom have been competing for the same properties for sale.
And it’s not the first tax change aimed squarely at landlords. No so long ago, the Government introduced a 3 per cent stamp duty surcharge on all second properties.
Unsure of what the tax landscape looks like for landlords? Check out our ultimate guide to rental property tax
It is not all bad news, as landlords who bought their properties via a company structure are exempt from the tax changes. Those with furnished holiday owners also fall into this category.
Rental properties bought through a company structure see rental profits shielded from income tax of up to 45 per cent.
Under such a structure, there are other taxes to consider, such as corporation tax, but this is at a much lower - and attractive - rate of 19 per cent.
If you’re considering setting up a company structure for your rental properties, get started with our article on buying an investment property through a company.
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