Source: HM Revenue & Customs | 07/03/18
Under new rules that came into effect from April 2017 the tax relief on mortgage costs for residential landlords is being gradually restricted to the basic rate of tax. Many landlords of residential properties that used to benefit from full tax relief on finance charges, such as mortgage interest now face higher tax bills. These changes will start to hit even harder when the amount of higher rate tax relief on finance costs is restricted to 50% from April 2018.
The reduction in the amount of tax relief available for finance costs for landlords will continue to be phased in during 2019-20 when the deductions from property income will be restricted to 25% and from 2020-21 there will be no additional relief on finance costs for higher rate taxpayers.
These changes are affecting many higher rate and additional rate taxpayers and particularly those with highly leveraged properties. The increase in taxable income can also have the knock-on effect of moving taxpayers into paying higher tax rates, losing personal allowances and restricting the amount of tax relief on money invested in a pension.
Finance costs include interest on mortgages, loans - including loans to buy furnishings and overdrafts as well as alternative finance returns, mortgage fees and other costs and discounts, premiums and disguised interest.
The finance cost restrictions apply to UK resident individuals that let residential properties in the UK or overseas, non-UK resident individuals that let residential properties in the UK, individuals who let such properties in partnership and trustees or beneficiaries of trusts liable for income tax on the property profits. Landlords of furnished holiday lettings are not affected by the restriction on finance costs.
If you are concerned by these changes please call so that we can discuss the effects on the financing of your property portfolio.
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Some accountancy websites also provide pages and pages of tax information, helpsheets, etc. We prefer to give clients personally tailored advice. So, if you want details of tax rates and allowances just go to the HMRC website on which you should find what you’re looking for. If you need more individual advice please contact us.
Below are links to websites you may find of interest, but as we like to support our local community and clients, we have included links to websites that may be of interest: