If annual income is no higher than £1,000, the landlord will have a full release, which means that expenses will not be taken into account when calculating the profits of a property business.
Those earning over £1,000 can claim the trading allowance which will lower the taxable profit. A spokesperson from HM Revenue and Customs told Mortgage Solutions that sometimes this is more beneficial if the business expenses are not very high.
For instance, if someone earns £1,800 in trading income and claims the trading allowance, he or she will only have a taxable profit of £800.
David Hollingworth from L&C Mortgages said that as the rule only applies to income up to £1,000 it is not going to be of great relevance to too many landlords, as most will be generating an income greater than that.
He added: “However, where it may perhaps have more practical application would be for those that occasionally generate a property income through Airbnb or similar occasional lets and I think that HMRC points to the allowance assisting the sharing economy.
“As with all tax-related matters though, it’s something worth landlords knowing about but ultimately individual specialist tax advice will be required to assess whether it is relevant.”
Landlords discouraged from making profits
Dominik Lipnicki, director of Your Mortgage Decisions said this is another example of how the conservative government discourages buy-to-let landlords to make profits on their properties.
He added: “Any taxation on buy to let is designed to discourage landlords from entering or remaining in the market, trying to fix the property price.
“The big issue is that a lot of amateurs who are not expert landlords do not understand taxation and other implications and it is getting more and more difficult as people do not know what to do.”
Capital Fortune mortgage adviser James Drury said: “It is important that landlords have the best advice to attend the best interest rate and maximise borrowing capacity. However, at the same time as new rules and changes continue to come in, they should undertake suitable tax advice.
“It is important that mortgage advisers do not give any tax advice and that tax advisers do not offer any mortgage advice to customers.”