Tax Relief Restriction
29th March 2017Buy-to-let Mortgages: Tax relief restrictions soon to commence.
The Chartered Institute of Taxation (CIOT) issued a press release today reminding residential property landlords that the first phase of the restriction of tax relief for mortgage interest commences in April.
The change means that finance costs (including mortgage interest) will no longer be deductible in full in order to calculate taxable rental profits, therefore all individual residential landlords with finance costs will be affected in some way. The restriction works by disallowing finance costs and instead introducing a tax reducer equal to 20% of the disallowed amount. The total income calculated in the tax computation will therefore increase, which could cause further restrictions (to the personal allowance and child benefit, for example, depending on the level of income).
The CIOT are advising landlords to be cautious about making ‘knee-jerk moves in response to the changes’, which are being phased in over four tax years. The timetable for the changes in relief is as follows:
| % of finance costs given as: | ||
| Tax year ending: | Rental expense | 20% Tax reduction |
| 5 April 2017 | 100% | 0% |
| 5 April 2018 | 75% | 25% |
| 5 April 2019 | 50% | 50% |
| 5 April 2020 | 25% | 75% |
| 5 April 2021 | 0% | 100% |
Companies are not affected by the new restrictions and will continue to receive relief for mortgage interest and other finance costs in the usual way. Individual landlords who choose to incorporate need to ensure that they consider the full tax impact of doing so, including stamp duty land tax on the market value of properties transferred and potentially capital gains tax.
Blog entry by: Jodie Tarbin.
Disclaimer - All information in this post was correct at time of writing.
