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Landlords and tax relief on interest

Paystream News

David McManus

Thursday 23rd Feb, 2017

The new tax year which begins on 6 April 2017 sees the phasing in of a restriction of tax relief for interest paid by buy-to-let landlords on the mortgages or loans they have taken out to acquire their let property.

Over the next 4 years the amount of tax relief landlords can get on residential property finance costs will be gradually restricted to the basic rate of tax. For 2017/18 they will only be able to claim 75% of their finance costs (usually mortgage interest) from the rental income with the remaining 25% being given as a basic rate tax reduction. By 2021/22 0% will be deductible from rental income and 100% by a basic rate reduction.

HMRC's website gives some examples showing how landlords with differing levels of tax liability will be affected. The essence of the change is to restrict tax relief on finance charges for rental property owned by individuals to the basic rate of tax.

Together with the additional 3% Stamp Duty Land Tax (SDLT) on buy-to-let properties, this has caused many individual landlords to consider putting their rental properties into a limited company where the interest restriction doesn't apply.

If you are considering this alternative please ensure that you take proper legal and tax advice based on your particular circumstances.