We have introduced our monthly Property Clinic, which promises to answer many of the questions we get asked in the office.This month we look at tax changes for Landlords.
If you have a question for our
monthly Belvoir Property Clinic, please send to info@belvoirandover.com
Q Can you explain the tax changes that have been introduced for buy-to-let landlords as I am about to file my tax return
A This is a question we have been asked a lot at
Belvoir, and it’s not an altogether simple one to answer.
The tax changes only apply to individual landlords who let
property in the UK, those who let in a partnership or Trustees of a trust
directly holding UK residential property. The new tax rules won’t apply to companies
or landlords of furnished holiday lets.
In short, the main change being made under the new tax
rules, is that landlords will no longer be able to fully claim tax relief on
their mortgage interest payments and related finance costs.
Previously, landlords have been able to deduct a number of
allowable expenses along with mortgage and other finance expenses from their
rental income and just pay tax on the difference. Now however, tax relief on
finance costs will be restricted to the basic rate of Income Tax with the
restrictions being phased in gradually from 6 April 2017 until fully in place
from 6 April 2020.
You’ll still be able to deduct some of your finance costs
when you work out your taxable property profits during the transitional period.
These deductions will be gradually withdrawn and replaced with a basic rate
relief tax reduction.
Tax year
|
Percentage of finance costs
deductible from rental income
|
Percentage of basic rate tax
reduction
|
2017/18
|
75%
|
25%
|
2018/19
|
50%
|
50%
|
2019/20
|
25%
|
75%
|
2020/21
|
0%
|
100%
|
We would advise you to take some professional advice
regarding how this will affect you based on your particular personal
circumstances. There is also more information on the full impact of the changes
and case studies published by HMRC which can be accessed on www.gov.uk
