Tax breaks for buy-to-let landlords will be curbed, it has been announced in the Summer Budget 2015.

Chancellor George Osborne's announcement will cap the amount landlords can claim on mortgage interest payments, in a move Osborne says will "create a more level playing field between those buying a home to let and those buying a home to live in".

Currently, those buying a property for the purposes of letting it out can deduct numerous expenses from any rental income they receive on renting out the property.

These expenses include any mortgage interest. This is the case whether or not the buyer has taken out an interest-only mortgage or a repayment mortgage.

However, under the new rules, which will be introduced over a four-year period from April 2017, the amount landlords can claim as relief will be capped at the basic-rate of tax, which is 20%.

At the moment, landlords are able to claim tax relief on their mortgage interest payments at the rate of tax they pay. This means that if they're a higher-rate taxpayer they are currently able to get 40% tax relief on the mortgage interest they're paying.

Under the new rules this will be restricted to 20% – the equivalent of the basic rate tax – regardless of what rate of tax they're paying.

How exactly this will work has yet to be defined by the Government.

Summer Budget 2015: Buy-to-let landlords hit by reduced tax breaks
Summer Budget 2015: Buy-to-let landlords hit by reduced tax breaks

Another expense landlords can currently deduct from furnished properties is 10% of the rent charged for wear and tear – even if they have made no actual improvements.

But from April 2016, the Government will replace this with a scheme that ensures landlords can only deduct expenses they actually incur in relation to the property.

Martin Lewis
Get Our Free Money Tips Email!