Landlords Be Aware as Tax Changes Take Effect
If you are a landlord, tax changes now take effect as we enter the end of the tax year. The government now restricts the amount of income tax relief landlords can obtain on residential property finance costs to the basic rate of tax. This covers a broad category including mortgage interest, all payments equivalent to interest, and incidental costs of obtaining finance (i.e. fees and commissions), legal expenses for loan agreements or valuation fees required for security of a loan.
As a landlord you may have been loosely staying in touch with this property news, but now these changes (announced from the Summer Budget 2015) are taking effect. Landlords should be acutely aware when evaluating their property incomes.
The phase out of the mortgage interest tax reductions will progress as follows:
Existing Tax Year:
- 75% of finance costs deductible against rental income,
- 25% as a basic rate tax reduction
2018-2019 Tax Year:
- 50% of finance costs deductible against rental income,
- 50% as basic rate tax reduction
2019-2020 Tax Year:
- 25% of finance costs deductible against rental income,
- 75% as basic rate tax reduction
2020-2021 Tax Year:
- 100% of costs as a basic rate tax reduction
The original tax system had been very popular; seeing a huge growth in the landlord market. Landlords had been enjoying tax relief from the interest on their mortgages for years. However, the government had evidently decided - due to long term low interest rates and perhaps more importantly to appeal to the owner occupier property market - to phase out the tax advantages to landlords.
Whilst the pressure on landlords could be questionably growing, being aware of the changes will allow one to decide what steps can be taken to ensure your asset(s) work best for you. We always recommend that you seek your accountant’s advice.
