Buy to Let Rules: What Taxes and Regulations Should You Know About in 2021?

New Buy to Let Tax Changes Explained 

Alongside the above changes to buy to let rules, some additional new tax laws on buy to let property investments were introduced in 2021. 

Here’s some information on buy to let tax changes and new tax laws on buy to let that everyone buying an investment property should know about. 

Stamp Duty Tax Reverts Back to Pre-Covid Rates 

Stamp duty is one of the most significant types of tax on buy to let purchases, with varying rates paid depending on property value and whether you’re a buy to let buyer, first-time buyer, or buying a second home.  

Since reducing tax is always a good thing, many investors jumped at the chance to minimise their stamp duty land tax during the stamp duty holiday.  

Announced in July 2020, the stamp duty tax holiday allowed buy to let investors and homebuyers to avoid stamp duty tax or pay a lower rate of tax than usual.  

This tax break contributed to the massive rise in house prices across the UK in 2020 and 2021. 

As of October, however, the stamp duty holiday has officially ended in England and Northern Ireland, and buyers are required to pay the typical rates on property purchases. 

In April 2021, a stamp duty surcharge was also introduced for overseas buyers. This surcharge requires overseas buyers to pay an extra 2% in stamp duty taxes. 

Read our guide to stamp duty tax on buy to let property to understand how much you’re likely to pay. 

Tax Relief Rules on Buy to Let Mortgages

2021 is the first full year where those with a buy to let mortgage cannot deduct their mortgage expenses from their rental income.  

This rule has been gradually enforced over recent years, with landlords able to offset mortgage interest payments against rental income by claiming 75% in 2017/18, 25% in 2019/20, and now 0% as of 2021. 

Instead, buy to let investors and landlords are given a 20% tax credit on interest payments.  

You can find out more about buy to let mortgages, typical mortgage rates, and more with our buy to let mortgage guide.  

Buy to Let Income Tax Rates 2021 

Buyers of investment properties need to pay income tax on the money they earn through rent. The only downside to high rental yields on an investment property is that a higher income tax may be payable.  

The individual income tax rates tend to change, but for 2021, the personal allowance (the amount you can earn before paying tax) is £12,500 – the same as the last tax year. 

However, the higher rate threshold, which is the point at which you start paying a higher tax rate of 40%, increased in 2020 to £50,000.  

So, this is something for buy to let investors to keep in mind for 2021. 

What Buy to Let Rules and Buy to Let Taxes Are Staying the Same? 

While some aspects of buy to let have changed for 2021, many tax rules on buy to let and buy to let responsibilities remain the same as those in 2020. 

Here is a brief summary of the buy to let rules, taxes, and regulations that haven’t changed for 2021 but still apply to all buy to let investments. 

• Capital gains tax – CGT rates are the same for 2021/22 as they were for 2020/21. The general capital gains tax allowance (the amount you can earn before tax is payable) is £12,300 for 2021. 
• Energy Efficiency rating – All rental properties in the UK must hit an energy efficiency score (EPC rating) of at least E.   
• Fire safety standards – Like electrical safety standards, fire safety standards remain for 2021 as a key buy to let rule, just without any new changes.  
• Landlord insurance – Those who own rental property are still encouraged to take out landlord insurance to protect themselves and their investment.  

Find out more about the buy to let rules and tax rules on buy to let that all investors should know about within our guide on how to become a landlord in the UK.