A key proposal in the July 2015 Budget was the restriction of mortgage interest relief available to landlords.
Currently, landlords are able to offset all their finance interest against the rental profits, before calculating the rent profit and subsequent tax liability.
By the 2021 tax year, whilst it will still be possible to get a deduction for finance interest, the relief will be capped to 20% of interest paid. The charge will take effect for the tax year commencing 6 April 2017, and will be tapered over 4 tax years, so that by April 2021, the full impact of the change will be felt.
There are some cases where this can have more of an impact than it seems as the way that the relief is calculated can push basic rate tax payers into the higher rate. This might mean a higher tax bill and also for some, a loss of child benefit.
The restrictions don’t start to apply until the tax year 2017/18 and even then are being phased in so there is time for landlords to plan how to deal with the new regime.
Please do not hesitate to contact us if you wish to discuss possible options to mitigate the impact of the change.