The UK government announced significant changes to tax relief for residential landlords, which will impact how they can claim relief on finance costs. Starting from April 2017, these changes will be phased in over four years, ultimately restricting tax relief to the basic rate of Income Tax.
Key Takeaways
Tax relief on finance costs will be limited to the basic rate of Income Tax.
The changes will affect individual landlords, partnerships, and trusts.
The new rules will be fully implemented by April 2020.
Overview of Changes
The new regulations mean that landlords will no longer be able to deduct their finance costs, such as mortgage interest, from their rental income when calculating their taxable profits. Instead, they will receive a basic rate tax reduction based on their finance costs after their Income Tax liability has been assessed.
This change is expected to affect a wide range of landlords, including:
UK resident individuals letting residential properties in the UK or overseas.
Non-UK resident individuals letting residential properties in the UK.
Individuals letting properties in partnership.
Trustees or beneficiaries of trusts liable for Income Tax on property profits.
However, certain groups will remain unaffected, including:
UK resident companies.
Non-UK resident companies.
Landlords of Furnished Holiday Lettings.
Phasing In of Restrictions
The restrictions will be gradually introduced over four years, as follows:
Tax Year | Percentage of Finance Costs Deductible | 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% |
During this transitional period, landlords will still be able to deduct a portion of their finance costs from their rental income, but this will decrease over time until it is completely phased out.
Implications for Landlords
These changes will not only affect how landlords calculate their taxable income but may also have wider implications. For instance, landlords who receive Child Benefit and have an income exceeding £50,000 may find themselves subject to the High Income Child Benefit Charge due to the changes in their taxable income.
Landlords are encouraged to review their financial strategies in light of these changes, as the new rules could lead to increased tax liabilities for some.
Conclusion
The changes to tax relief for residential landlords mark a significant shift in the UK tax landscape. Landlords should prepare for these changes and consider seeking professional advice to navigate the new regulations effectively. Understanding the phased implementation and its implications will be crucial for maintaining financial stability in the evolving property market.
Sources
GOV.UK, GOV.UK.
Comments