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
 
Lucy Bayliss
8th January 2020 It’s the final countdown!

There are only 23 days until the self-assessment tax return deadline of 31 January 2020. If your return is not filed electronically by this date, an automatic £100 penalty will be applied. Please note that the deadline for filing a paper tax return was 31 October 2019 and therefore all returns are required to be…

Read More »

Vanessa Pearson
13th December 2019 April 2020 Proposed IR35 changes: Status appeals process

As the planned changes to who determines IR35 status are fast approaching, contractors would be well advised to review their contracts on HMRC’s updated CEST (Check Employment Status for Tax) tool. Having provided answers to questions regarding substitution, control and nature of the work, the updated tool will give HMRC’s view of the workers employment…

Read More »

Ben Kilby
12th December 2019 VAT Surcharge

Have you or your business received one between 23 April 2018 and 31 January 2019?   If so, you may want to check if it has been dated. If it has not been dated you may be in for a refund. Any surcharge liability notice or surcharge liability notice extensions are invalid if they have…

Read More »

Lucy Bayliss
25th November 2019 Don’t let your tax bill affect your festive joy. Instead, spread your tax payments throughout the year!

With the festive period fast approaching, it is easy to lose sight of your self-assessment tax return!   If you are employed or receiving a pension and you file your return before 30 December 2019, you can elect to have your tax collected through ‘Pay As You Earn’ (PAYE) rather than paying one lump sum…

Read More »

Ian Piper
22nd November 2019 2019 Growth: Missing in action?

(Data Source) As another year draws to a close, local SME businesses will be forgiven for looking forward to drawing a line under it. With 2019 sales growth barely nudging 1%, it has been a year of focusing on not slipping backwards, rather than the usual mantra of continually signing up new accounts.  When commentators…

Read More »

Mark Burrows
21st November 2019 Avoiding Self Assessment Tax Scams

HM Revenue & Customs have reminded Self Assessment taxpayers to watch out for fraudsters as the tax return filing deadline of 31 January approaches.   HMRC say they have received nearly 900,000 reports of suspicious phone calls, texts or e-mails from scammers pretending to be the tax authority.  Most of these messages were about fake…

Read More »