In the summer budget the government announced that landlords will get tax relief only at the basic rate for interest paid on loans to acquire buy-to-let property.
The new rules are to be phased in over three years, starting in April 2017. They apply to 25% of the interest paid in 2017/18, 50% in 2018/19 and 75% in 2019/20. The full impact is delayed until 2020/21.
These rules do not apply to commercial property or furnished holiday lettings. Nor do they apply to a property letting business carried on by a company.
Instead of providing a deduction for the costs of the mortgage, the tax on the profits is reduced by applying the basic rate of tax to those costs and reducing the tax liability accordingly. For example, a higher rate taxpayer with rental profits of £10,000 before deducting interest of £4,000, will have a tax liability in 2020/21 of £3,200. This is £800 more than the tax payable in 2015/16.
Most basic rate taxpayers will be unaffected but those with taxable incomes approaching £42k will have increased tax liabilities.
Landlords with larger property portfolios may consider incorporating their business.
All landlords should start planning now for these changes.
To find out more contact: Nigel Atkinson nigel.atkinson@hghyork.co.uk, Robert Salenius robert.salenius@hghyork.co.uk or Paul Morris paul.morris@hghyork.co.uk or call 01904 655202.
