Restricting finance cost relief for individual landlords

This measure will restrict relief for finance costs on residential properties to the basic rate of income tax. This will be introduced gradually from 6 April 2017.

Finance costs includes mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.

Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.

Landlords will be able to obtain relief as follows:

• in 2017-18 the deduction from property income (as is currently allowed) will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction.

•  in 2018-19, 50% finance costs deduction and 50% given as a basic rate tax reduction.

•  in 2019-20, 25% finance costs deduction and 75% given as a basic rate tax reduction.

• ·        from 2020-21 all financing costs incurred by a landlord will be given as a basic rate tax reduction.

Policy objective

The government states that its objective with this policy is to restrict the amount of income tax relief landlords can get on residential property finance costs (such as mortgage interest) to the basic rate of tax. This will ensure that landlords with higher incomes no longer receive the most generous tax treatment. It will also  give landlords time to adjust as the Government will introduce this change gradually from April 2017 over 4 years.

Full details can be had from

 https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords