This April will see a change in the tax relief that landlords can claim on residential property financial costs, restricted to the basic tax rate.
At Lint Group we have been looking into the implications of these changes; we started with asking:
Who is going to be affected?
- This change will apply if you let a residential property as an individual, a partnership, or part of a trust.
- This change will affect the way that you receive relief for any interest you pay or other financial costs.
- Financial costs will not be a factor when you calculate your property profits that are taxable. What will happen instead is that after Income Tax on profits from property and other related income sources has undergone assessment, your specific liability for Income Tax will be subject to a ‘tax reduction’ at basic rate. For most landlords, this means the finance costs basic rate value.
- This will apply to all UK resident individuals who let residential properties whether that is in the UK or on property let out overseas.
- All non-UK resident individuals who have residential properties let out in the UK will also be liable to Income Tax on their property profits, as well as those letting out properties in partnerships, trustees or beneficiaries of trusts.
One important thing that we need to note was that although all residential landlords who have finance costs are going to be affected, not all will pay more tax. There is a useful page on the Gov.UK website that will help you calculate what your liability is likely to be.
Some of those who will not be affected by the new finance cost restriction are:
- Resident UK companies
- Companies that are non-UK resident
- Landlords who let out furnished holiday accommodation
In these cases relief for interest and any other finance costs will be received in the normal way.
What will be included in the new restrictions of finance cost?
Finance costs to be restricted will include interest on:
- Any mortgage
- Any associated loan to include loans being taken out to cover furnishings
- Any associated overdrafts
Other costs that will be affected:
- All alternative finance returns
- All fees as well as all incidental costs related to getting or to repaying a mortgage or loan