Finance charges for landlords – The knock on effects 12th November 2019 Since 6 April 2017, changes are being gradually introduced to restrict the relief available to landlords in respect of their finance costs. Under the old rules, the interest element of the mortgage payments was 100% allowable for income tax purposes. However, this is gradually being replaced with a 20% tax reducer instead. The timetable for the remaining changes is as follows: % of finance costs given as: Tax year ending: Expense 20% Tax reduction 5 April 2019 50% 50% 5 April 2020 25% 75% 5 April 2021 0% 100% For example, if in 2020-21 you have finance charges of £1,000, instead of this being deducted from your property income, this will be included as a tax reduction of £200. As interest is disallowed in the rental accounts, this increases overall taxable income, which could not only push you into the higher rates of tax, but could also have the following side effects: Child benefit – if your adjusted net income is pushed over £50,000 it may mean that a high income benefit charge applies to you. Marriage allowance – in order to be eligible for the marriage allowance you must be a basic rate tax payer (being income less than £50,000 for 2019/20).With the above changes your income might be pushed above this amount. Personal savings allowance – the amount of personal savings allowance that you are entitled to depends on your adjusted net income. If this is pushed over £50,000 then you will only be eligible for an allowance of £500 (as a higher rate taxpayer) rather than £1,000 (as basic rate taxpayer) For more information on how to calculate adjusted net income, please visit the following link: https://www.gov.uk/guidance/adjusted-net-income For more information on anything covered in this blog please contact us or your usual Whiting & Partners office.