Tax relief on interest on individual landlords is being phased out.
As announced in Summer Budget individuallandlords will no longer be able to offset the interest cost of mortgages and loans. Instead they will claim a basic rate relief. This will be 20% of the lower of;
- finance costs not deducted from income in the tax year
- profits of the property business in the tax year
- total income (excluding savings income and dividend income) that exceeds the personal allowance and blind person’s allowance in the tax year
Any excess finance costs may be carried forward to following years if the tax reduction has been limited to 20% of the profits of the property business in the tax year.
Also if you are a higher rate tax payer you will lose the tax relief at 45% and will be restricted to 20%.
The good news is that this is being phased in gradually so that you can claim the finance costs in the following years;
Deductions from property income will be restricted to:
- 75% for 2017 to 2018
- 50% for 2018 to 2019
- 25% for 2019 to 2020
- 0% for 2020 to 2021 and beyond
The key to the change is that this is for individual landlords. If you are a property company then the rules are different and you can still claim tax relief for finance costs. But don't rush putting your properties into a Limited Company as this will give rise to Capital Gains Tax and Stamp Duty. We recommend that landlords take advice now to see what is most tax efficient for their particular situation.
The information contained in this article is of a general nature and are intended only to provide an overview. They are not a substitute for professional advice and you are recommended to obtain specific professional advice before you take any action. No responsibility for loss occasioned by any person acting or refraining from action as a result of the information will be accepted by Gregory Accounting Services Ltd or its staff.
