From April 2017, the new rules regarding tax relief on finance costs for landlords are being phased in over 4 years. The amount of Income Tax relief landlords are eligible to receive on residential property finance costs will be restricted to the basic rate of tax. The term “finance costs” refers to mortgage and loan interest, overdraft fees/interest and any other incidental costs for getting or repaying mortgages and loans. Tax relief relating to repairs and renewals for the property will not be affected by these changes.

Who will these changes affect?

All residential landlords with finance costs will be affected, but not all will have more tax to pay. This includes:

• Individuals who are UK resident
• Individuals who are not UK resident
• Individuals who are part of a partnership who let out residential properties
• Trustee or beneficiaries of trusts that are liable for income tax on residential property profits

You will not be affected by the changes and will continue to receive relief for finance costs in the usual way if:

• You let out commercial properties
• You let out properties through a limited company
• You are a landlord of Furnished Holiday Lettings

Phasing in….

The restriction will be gradually phased in over the next 4 years, in the transitional period you will still be able to use some of your financial costs to work out your taxable profit, the rest of the financial costs will be replaced with a basic rate tax reduction. The breakdown of this is below:

Tax year	Percentage of finance costs which is tax deductible	Percentage of basic rate tax reduction
2017/18	75	25
2018/19	50	50
2019/20	25	75
2020/21 onwards	0	100

 

Other implications

As the new rule changes the way taxable profits are calculated this could have an impact on anything that is based on your taxable income, including High Income Child Benefit Charges.

Other tax changes for landlords

• Wear and tear allowance reform- from April 2016 Landlords are no longer allowed to automatically deduct 10% from their income instead they can only deduct actual costs incurred. Previously, landlords letting out fully furnished properties could deduct 10% of their rental income as a cost incurred even if they had not incurred any costs.
• There have also been changes to stamp duty for landlords, there is now an additional 3% surcharge on top of the normal rates of stamp duty tax.

Will I be affected?

If you’re not sure how these changes will affect your personal tax affairs, please contact us here at Crowther Chartered Accountants! We provide friendly tax advice along with a full range of accountancy services.