Landlords’ finance charges restrictionsSource: HM Revenue & Customs | | 03/10/2017
The government’s move to restrict the tax relief landlords receive on finance charges started to take effect from April this year. This is the first year that finance charges are being restricted. The tax relief on mortgage costs used to buy investment properties is gradually being restricted to the basic rate of tax. Landlords of residential properties had benefited from potential higher rate tax relief on finance charges, such as mortgage interest, for a number of years, but for many landlords these days are coming to an end.
This phased reduction in relief will have the most impact for higher rate and additional rate taxpayers with significant mortgages on their properties.
The deductions from property income are being phased in over four years. Deductions from property income will be restricted to:
- 75% for 2017 to 2018 with the remaining 25% being available as a basic rate tax reduction.
- 50% for 2018 to 2019 with the remaining 50% being available as a basic rate tax reduction.
- 25% for 2019 to 2020 with the remaining 75% being available as a basic rate tax reduction.
- 0% for 2020 to 2021 with all financing costs given as a basic rate tax deduction.
The new finance charge restriction was partly prompted by concerns raised by the Bank of England that the huge growth in buy to let mortgages over the last few years could adversely affect the UK economy. However, this measure coupled with other changes for landlords including the additional stamp duty payable on buy-to-let properties has seen a marked decrease in landlord activity in the residential sector.
As indicated above, this change may have an adverse effect on the cash flow of landlords who have invested heavily in growing their property portfolio by maximising loans and mortgages to provide funding. In some cases, landlords with significant rental income and high interest payments may find themselves paying income tax at higher rates for the first time.
If you are concerned by this issue please call so we can discuss your planning options.
18/10/2017 - More...
The Parental Bereavement (Leave and Pay) Bill has been published by the government. Although the
Managing staff experiencing mental ill health
17/10/2017 - More...
Acas has launched new guidance to help employers manage staff who are experiencing mental health
Is it a car or a van?
17/10/2017 - More...
The First-Tier Tribunal recently heard three appeals that examined whether vehicles supplied to