A guide for individual landlords on the recent tax changes.
Whether you own one or 50 let properties, you need to be aware of the tax changes that have already started to take effect – and which will accelerate over the coming years.
Restricted interest
For periods before 6 April 2017, all the interest and finance charges relating to funding for a residential property business could be deducted in full from the rental income.
From 2017/18, the financial costs which may be deducted from residential property income by individual landlords are restricted as follows:
Tax year | Finance costs permitted |
2017/18 | 75% |
2018/19 | 50% |
2019/20 | 25% |
2020/21 | nil |
The landlord receives a tax credit equivalent to 20% of the lower of:
- finance costs not deducted from income
- income from the property business before interest
- total income exceeding allowances.
This tax credit is set against the income tax liability for the year (see below example).
Any unused tax credit is carried forward to be relieved against the tax payable on the property income in a future tax year. This restriction on finance charges will have the greatest impact on landlords who pay significant amounts of interest or other finance charges, and who may be pushed into the higher tax rates due to their increased taxable income. More…