The tax relief that landlords of residential properties get for finance costs will be restricted to the basic rate of income tax, this will be phased in from April 2017.
The amount of income tax relief landlords can get on residential property finance costs will be restricted to the basic rate of tax.
The changes will:
- affect your clients if they let residential properties as an individual, or in a partnership or trust
- change how they receive relief for interest and other finance costs
- be gradually introduced over four years from April 2017
Finance costs won’t be taken into account to work out taxable property profits. Instead, once the Income Tax on property profits and any other income sources has been assessed, your client’s income tax liability will be reduced by a basic rate ‘tax reduction’. For most landlords, this’ll be the basic rate value of the finance costs.
Who’ll be affected?
Clients will be affected if they are a:
- UK resident individual that lets residential properties in the UK or overseas
- non-UK resident individual that lets residential properties in the UK
- individual who let such properties in partnership
- trustee or beneficiary of trusts liable for Income Tax on the property profits
All residential landlords with finance costs will be affected, but only some will pay more tax.
Clients won’t be affected by the introduction of the finance cost restriction if they’re a:
- UK resident company
- non-UK resident companies
- landlord of Furnished Holiday Lettings
They will continue to receive relief for interest and other finance costs in the usual way. The restriction will be phased in gradually from 6 April 2017 and will be fully in place from 6 April 2020.
|Tax year||Percentage of finance costs deductible from rental income||Percentage of basic rate tax reduction|
|2017 to 2018||75%||25%|
|2018 to 2019||50%||50%|
|2019 to 2020||25%||75%|
|2020 to 2021||0%||100%|