Phased removal of mortgage interest relief

If you’re a landlord currently preparing your 2017/18 tax return, you need to consider the government’s phased removal of mortgage interest relief and ensure the correct amounts are reported.

In the tax year 2017/18, only 75% of mortgage interest repayments can be offset against income. From 1 April 2020, only basic rate tax relief will be available on such costs.

The changes apply to individuals buy to let landlords with residential property businesses. Tax relief restrictions apply to finance costs and fees associated with obtaining finance and include:

  • Legal expenses
  • Mortgage interest payments
  • Fees incurred securing loan agreements
  • Valuation fees

Who isn’t affected?

Companies carrying on property trading activities, commercial property businesses and furnished holiday lets.

Other issues that may arise

Once disallowed finance costs have been added back in the rental accounts, the reduced tax relief will increase profits and may push individuals up into the higher rate tax bracket.

This could have an impact on those in receipt of state benefits including Child Benefit and could mean these forms of income are reduced.

You may fall into a higher tax bracket for capital gains tax purposes, meaning any capital gains may be subject to tax at the higher rate of 20% instead of 10% (28% instead of 18% for residential property).

Anything I can do to reduce my taxable income?

Yes, you could consider making higher pension contributions into either a company pension or a private pension. You could also consider making gift aid contributions as these attract tax relief.

If you’re affected by the restriction in higher rate tax relief and would like to understand your position in more details, we can help you.

Please contact [email protected] for more information or call 01527 558539.

Or, take a look at our website for further information and to read about our full range of services.

buy to let landlords