If you’re a private landlord, you’re probably aware of the tax review proposed as part of George Osborne’s post-election budget last year. Unfortunately, despite legal battles and petitions from those representing landlords, the tax review is set to go ahead starting next year.

What does this mean for you? As a landlord, you’ll no longer be able to deduct buy-to-let costs from your rental income – including the cost of your mortgage interest – unless you register as a limited company.

Whether you own one property or a whole portfolio, it’s important to be aware that the review is likely to affect you to some degree, so you can make preparations. With this in mind, we’ve put together a guide on what to expect and how to avoid it.

What do the changes involve?

In a nutshell? A significant tax increase for private landlords. The most impactful part of this review is the massive reduction in tax relief over the next few years. This will see landlords effectively being taxed on their turnover, rather than their profit. Many will suffer a huge overall cash shortfall as a result.

When will they come into effect?

The plan as it stands is to phase the changes in from 2017, with the view to have them implemented in full by 2020. For 2020/2021 and subsequent tax years, the relief will have been slashed to nil.

Who will be hit the worst?

Unfortunately, it’s the inability to deduct the cost of mortgage interest from rental income when paying tax that will be the real kicker. Landlords are therefore significantly better off on the wealthier end of the spectrum, preferably without a mortgage.

For those of you who do have a mortgage, your tax rate is based on your income tax band, so depending on where you sit on that scale your outcome will look different. Those in the middle bracket who are paying higher-rate tax on their buy-to-let properties and large mortgages will see their tax increase quite noticeably. Those on basic-rate tax might not get off easy either, however, as many will be pushed up into the higher bracket due to new profit calculations.

The only parties immune from the tax review are wealthy investors and limited companies.

What can I do to navigate this?

As a landlord, this may all seem pretty daunting, but there are a few different avenues you can take to ensure you’re not hit hard by the new tax review:

Register as a limited business. Incorporated companies are exempt from the tax changes, and only pay tax on their actual profit. Check out our different packages now and we’ll help you get incorporated, with no hidden costs. For advice on making the move from a sole trader to a limited business, we’ve also got an article over in our Help Centre that can give you an idea of what to expect.

Alternatively, you could hike up your rent, and essentially ask your tenants to foot the bill. You will, however, then run the risk of out-pricing your occupants. Another option is the costly task of refurbishing in the short-term in order to rent the property for a higher amount in the long-term.

Alternatively, you can transfer ownership of your property to someone in a lower tax band: a family member, for example. In this case, be aware of Capital Gains Tax, and also the fact that property ownership could lift them into a higher tax bracket themselves.

Many buy-to-let owners, sadly, will be forced to sell up due to new profit calculations, being pushed into a higher tax bracket, and/or being taxed on non-existent or greatly reduced profits.

Whatever you choose to do, the buy-to-let market certainly still has its advantages and can lead to worthwhile payoffs. It’s always worth doing your research and staying on top of the market so you know what’s coming. If you’re thinking of getting serious about property development, and need some advice on where to start, check out our article on the topic. For all your other queries, head over to our Help Centre.