At current, all landlords of residential property in or outside the UK, are permitted to claim relief for finance costs (e.g. mortgage interest) on their let property, giving tax relief at 40% and 45% for landlord.
Individual that receive rental income on residential property and incur finance cost (such as mortgage interest) will not be given a full relief on the finance cost incurred from 6 April 2017.
Landlords will receive a basic rate reduction from their income tax liability for their finance costs from their property income.
Landlord will be able to obtain relief as follows:
Tax Year 2017/18
The deduction from the property income will be restricted to 75% of the finance costs, with the remaining 25% being available as a basic rate tax deduction
Tax Year 2018/19
The deduction from the property income will be restricted to 50% of the finance costs and 50% given as a basic rate tax reduction
Tax Year 2019/20
The deduction form the property income will be restricted to 25% and 75% given as a basic rate tax reduction
Tax Year 2020/21
All financing cost incurred by landlord will be given as basic rate reduction
Landlord of residential property paying tax a the higher or additional rates will be affected by the restriction of finance costs.
The objective is to bring the income tax relief to basic rate for all. This will ensure that the higher rate taxpayers no longer receive higher rate tax relief.
The above rules are not applicable to the furnished holiday lettings (FHLs)
The change will have no impact on those who own and let residential properties through company; companies will continue to deduct loan interest as a business expense.
