New rules are set to be phased in starting in April such that finance costs (eg.interest on mortgages or loans relating to the property) will no longer be takeninto account when working out taxable profits. Instead, the income tax on property profits will be calculated first and the landlord’s income tax liability will then be reduced by a basic rate tax reduction. HMRC have recently issued guidance and case studies to help in understanding how the new rules will work.
The rules apply to UK resident individuals that let out residential properties in the UK or overseas, non-UK resident individuals who let out residential property in the UK, individuals who let such properties in partnership and trustees or beneficiaries of trusts liable for income tax on residential property profits. The rules don’t apply to commercial properties or to companies letting residential property or to furnished holiday lettings.
The restriction will be phased in gradually from 6th April 2017 at a rate of 25% a year to reach its full effect from 6th April 2020.
These changes will impact many landlords of residential property and it will be important for them to be aware of how they will be affected and take guidance from their accountant or tax adviser. As well as changes to their income tax liabilities, there can also be knock-on effects for some people in areas such as Child Benefit entitlement, Personal Allowance, pensions annual allowance, taxation of chargeable gains etc.
The government guidance is available by clicking here and here.
For advice on Buy to Let Mortgages, please contact one of our independent mortgage specialist.
The Financial Conduct Authority does not regulate most form of Buy to let mortgages or tax advice.
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