Tax Relief Restriction

29th March 2017

Buy-to-let Mortgages: Tax relief restrictions soon to commence.

The Chartered Institute of Taxation (CIOT) issued a press release today reminding residential property landlords that the first phase of the restriction of tax relief for mortgage interest commences in April.

The change means that finance costs (including mortgage interest) will no longer be deductible in full in order to calculate taxable rental profits, therefore all individual residential landlords with finance costs will be affected in some way. The restriction works by disallowing finance costs and instead introducing a tax reducer equal to 20% of the disallowed amount. The total income calculated in the tax computation will therefore increase, which could cause further restrictions (to the personal allowance and child benefit, for example, depending on the level of income).

The CIOT are advising landlords to be cautious about making ‘knee-jerk moves in response to the changes’, which are being phased in over four tax years. The timetable for the changes in relief is as follows:

% of finance costs given as:
Tax year ending: Rental expense 20% Tax reduction
5 April 2017 100% 0%
5 April 2018 75% 25%
5 April 2019 50% 50%
5 April 2020 25% 75%
5 April 2021 0% 100%

Companies are not affected by the new restrictions and will continue to receive relief for mortgage interest and other finance costs in the usual way. Individual landlords who choose to incorporate need to ensure that they consider the full tax impact of doing so, including stamp duty land tax on the market value of properties transferred and potentially capital gains tax.

Blog entry by: Jodie Tarbin.



 
Other items in Blogs
 
Ian Piper
24th September 2020 Corporation Tax due soon: Not necessarily.

Companies with 31 December 2019 year ends will be due to pay their corporation tax on 1 October 2020. If that company is expecting to suffer a loss during the 2020 financial year, perhaps due to COVID-19 related reasons, it should be possible to carry that loss back one year and claim a refund of…

Read More »

Ruth Pearson
17th September 2020 Fuel Rates From September 2020

HMRC have updated the latest company car advisory fuel rates. These rates apply from 1 September 2020.   The guidance states that you can use either the previous or current rates, for up to one month from the date the new rules apply.   The new rates per mile are below: Engine size Petrol LPG…

Read More »

Robert Baxter
16th September 2020 Redundancy Pay & Payment in Lieu of Notice (PILON)

HMRC have introduced legislation which ensures employee’s statutory rights, including redundancy pay and payment in lieu on notice (PILON), are based on an employee’s normal pay and not their furlough pay.   Redundancy pay   An employee is entitled to redundancy pay if they have been working for their current employer for 2 years or…

Read More »

Ruth Pearson
15th September 2020 Coronavirus Job Retention Scheme and the Job Retention Bonus

We are halfway through September and this month sees one of the biggest changes to the current Coronavirus Job Retention Scheme (CJRS). Employers now pay 10% of furloughed employees’ wages to make up 80% of their total wages up to a cap of £2,500, with the wage cap being proportional to the hours not worked.…

Read More »

Richard Alecock
10th September 2020 Self Assessment Deadlines

Two self assessment deadlines are approaching:   5th October 2020 For those individuals who have not previously completed a tax return you will need to report to HMRC a liability for 2019/20.   31st October 2020 For those individuals who have previously submitted ‘paper’ self assessment tax returns, the deadline for the 2019/20 return is…

Read More »

Jaimie King
4th September 2020 New charity register

The Charity Commission has launched a new public register for charities – making information more transparent.   Using the below link, anyone can search for details of a charity which includes data such as financials, who the trustees are, and whether the charity fundraises from the public.   The Charity Commission wants members of the…

Read More »