Significant changes to the rules on landlord property tax relief

Significant changes to the rules on property tax relief came into effect in April of this year which may have implications for those looking to rent out properties.

The restriction of interest relief to basic rate of tax will apply to 25% of the interest with 75% of the interest getting relief against rental income in the usual way. As a result, affected landlords will no longer be able to deduct finance costs from their property income to arrive at their property profits. A basic rate reduction from their income tax liability will instead be made to them for their finance costs.

This change is being implemented gradually, over a period of four years.

For 2017/18, the deduction from property income is restricted to 75% of finance costs, with the remaining 25% available as a basic rate tax reduction. Over the next three years, the direct deduction of finance costs will reduce each year by 25% until 6 April 2020.

At that time, all finance costs incurred by a landlord will be given as a basic rate tax deduction.

Landlords will first see the impact of this in the calculation of their tax liabilities for 2017/18 and the balancing payment due 31 January 2019.

Due to 25% of the interest not being deductible from income, total income may cross thresholds and result in the following:

• £50,000, resulting in Child Benefit being claimed back
• £100,000 resulting in personal allowances being reduced.

As well as the changes in the tax liabilities, changes to stamp duty on second homes and the new stress tests being applied by lenders on buy to let mortgage applications are all making the landlord regime quite a difficult one to navigate.

If you are affected by any of these changes and want to find out more about the overall impact and your options, speak to Jolene Mallaghan on 028 8772 4697.