The rules for rental income are changing
...don't be left out in the cold
In April 2017, the law changed with regards to tax relief for residential property finance costs, so what does this mean?
The restrictions will apply to mortgage interest, interest on any loans to buy furnishings for properties and any fees incurred when taking out or repaying any mortgages or property loans.
The new rules will apply to the following;
The new rules do not apply to the following;
The changes mean that tax relief at the marginal rate of tax, which depends on your overall level of taxation, will no longer be available in full from April 2017 and will be phased out and therefore not be available at all by April 2020.
From the 2017/2018 tax year a proportion of the finance costs associated with rental properties will be restricted to tax relief at the basic rate of tax only.
So, what is the impact of the restrictions?
The new rules may have an impact on a taxpayer’s overall tax position, some examples are below;
If your income is via a trust, then we would suggest you contact a trust tax specialist, we are happy to pass your details on to a trusted advisor if you don’t have one.
The changes will be phased in as follows;
This means in effect, that if for example you have rental income of £10,000 and mortgage interest costs of £8,000, until the law changed, you were able to deduct 100% of the mortgage interest, so therefore pay tax on £2,000.
For the same property in the 2020/2021 tax year and with the same mortgage interest costs, you will pay tax on £10,000, with no deduction of mortgage interest, therefore in effect paying tax on monies you haven’t had full access to!
This is a basic illustration and doesn’t take into account any other related expenses for the property
It will be fair to say, that for most Landlords these changes are likely to have a substantial impact, particularly anyone who has borrowed heavily to finance the purchase of a property.
If you wish to discuss your personal circumstances, please get in touch with us at RIFT Accounting and we will answer any questions you have.