Landlords across the UK need to be prepared for tax changes which are being introduced over the next four years. These changes will affect the property rental sector quite significantly.

In the summer budget of 2015, the Government announced that landlords who were higher-rate or additional-rate tax payers would no longer be able to deduct mortgage interest from their rental income. They could only secure relief on the interest at the basic tax rate rather than the higher level. This new rule introduced in 2015 by the Government applied to landlords who own personal property as well as those letting properties out in a partnership. It’s worth noting that this rule hasn’t been applied to furnished holiday lets or properties which are held in a company.
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Unfortunately for landlords, it’s not just the interest on mortgages that are changing. Any loans to buy furnishings or fees incurred are also affected, however these can be deducted at the basic income rate reduction. There is some good news for landlords. The loss of relief isn’t disappearing overnight, changes are being implemented gradually. Here are some key dates to look out for:-

  • From 2017/18 landlords can still claim 75% of the finance costs at the higher rate. The remaining 25% will be deducted at the basic rate.
  • From 2018/19 this will fall to 50%.
  • From 2019/20, 25% will be deducted with the other 75% receiving basic-rate tax reductions.
  • From the tax year 2020/21 all financing costs will only attract the basic-rate tax reduction.

Changes are being phased in

The mortgage interest tax relief changes are being phased in gradually. It won’t be until the 2020/21 tax year that landlords will feel the full force of changes. If as a landlord you don’t have any mortgage on your rental properties, you won’t see any difference to your tax bill. The new tax changes only apply to those landlords with mortgages on their property or properties. In the main, circumstances will only change for those landlords who are currently higher or additional rate tax payers.

Under the new mortgage interest tax relief rules, some landlords may earn a higher income than in the past pushing them into a higher rate tax bracket. As the new changes kick in fully, many landlords will have to face up to the reality of increased tax bills. When it comes to tax there’s “no one size fits all” solution, every landlord has different circumstances.

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Get in touch with the professionals

Mortgage interest tax relief changes can be quite confusing. If you’re not too sure how these changes will affect you, feel free to get in touch. We can help provide you with all the info needed so you’re ready for the changes in mortgage interest tax relief.

We will put you on the right track to ensure you are claiming everything you can against your rental income. As well as mortgage instant tax relief advice, we also offer reliable property lettings, management services and helpful guides for landlords.