From April 2017, landlords will no longer be able to deduct all of their finance costs from their property income. They will instead receive a basic rate reduction from their income tax liability for these finance costs.
The restriction will be phased in with 75% of finance costs being allowed in 2017/18, 50% in 2018/19, 25% in 2019/20 and be fully in place for 2020/21. The remaining finance costs for each year will be given as a basic rate tax reduction but can’t create a tax refund.
Please note that finance costs do not just include mortgage interest. Interest on loans to buy furnishings and fees incurred when taking out or repaying loans or mortgages are also included.
As the restrictions are being phased in, there is still time to plan to rebalance a property portfolio and the amount of debt financing. Please talk to us if you would like assistance in this matter.