Higher rate tax relief will be restricted for buy-to-let landlords on the costs of finance, such as mortgage interest, from April 6th, 2017 onwards.
The change is being phased in over three years.
It means that all finance costs (not just loan interest) will no longer be an allowable expense when calculating your taxable rental profits.
Individual landlords will be required to make an adjustment via their tax return.
The adjustment will give you a basic rate tax deduction after the rental profits have been taxed.
This deduction will be up to 20% of the finance cost.
"Unfortunately, this measure will impact on all taxpayers who incur finance costs who report rental business, under Self Assessment and not just higher rate taxpayers," said Peter Way-Rider, tax manager at Ellis & Co Chartered Accountants and Business Advisers.
"Finance costs include mortgage interest, any payments that are equivalent to interest, and incidental costs of obtaining finance, such as fees and commissions, legal expenses for negotiating drafting loan agreements or valuation fees required to provide security for a loan."
Who is affected?
These new rules only apply to individuals with residential property businesses.
They do not apply to companies.
They do not apply to land and property dealing or development businesses, commercial lettings or furnished holiday lets.
For further information about this or any other tax matter contact Ellis & Co’s tax manager Peter Way-Rider on 01244 343504.