From this April onwards, landlords will no longer be able to claim full tax relief on finance costs for their property.
That's because the last in a series of planned changes to finance cost relief - also known as mortgage interest relief - is due to take place.
Before April 2017, landlords were able to deduct 100% of the finance costs they incurred on their property from their income when calculating profits.
This included mortgage interest, as well as interest on loans to buy furnishings, and the fees for taking out mortgages or loans.
The relief has been gradually phased out for residential property over the last few years, and is set to be removed altogether from 6 April 2020 onwards.
In place of finance cost relief, landlords will be able to claim a basic-rate reduction from their income tax liability.
In each tax year, landlords can claim:
- 2017/18 - 75% finance costs deduction, 25% basic-rate tax reduction.
- 2018/19 - 50% finance costs deduction, 50% basic-rate tax reduction.
- 2019/20 - 25% finance costs deduction, 75% basic-rate tax reduction.
- 2020/21 - 100% basic-rate reduction.
HMRC said that by introducing this measure, it aimed to "ensure that landlords with higher incomes no longer receive the most generous tax treatment".
However, landlord campaign groups argue that this, along with other tax changes for landlords in recent years, has amounted to unfair treatment and affected the supply of rental housing.
The Residential Landlords Association (RLA) and National Landlords Association both called for changes to landlord taxation to be made in next week's Spring Budget on 11 March 2020.
David Smith, policy director for the RLA, said:
"The tax system for rented housing is failing. It encourages the provision of holiday homes over long-term properties to rent, it deters investment in new housing and provides no support to those wanting to make energy efficiency improvements.
"For the sake of those living in rented housing or who are looking for accommodation, ministers need to use the Budget to urgently change course."
Other changes for landlords
While it remains to be seen whether or not Chancellor Rishi Sunak will make further adjustments to the taxation of landlords on Budget day, a number of other measures are set to come in for 2020/21.
In particular, tweaks are being made to private residence relief on additional property.
Private residence relief usually applies when someone sells their main home, and is intended to protect them from the cost of capital gains tax.
It generally covers the period of time someone lived in a property, as well as the final 18 months in which they lived in the house.
That exemption for the final period someone lived in a property - called the final-period exemption - will be halved to nine months in April.
People who let a part of their property out can also claim letting relief on up to £40,000 of their chargeable gain. However, from 2020/21 onwards it will only apply where the owner of the property shares occupancy with their tenant.
Additionally, the deadline for paying capital gains tax on residential property is changing.
From 6 April 2020, anyone selling residential property in the UK will have 30 days from the completion of the sale to report and pay any capital gains tax due.
These tax changes, however, still need to be legislated for in Finance Act 2020 before 6 April, although they are likely to kick in from that point at the time of writing.
Talk to us about tax on your property.