In previous years landlords have been able to claim the full amount of mortgage interest paid against their rental income and if they were a higher rate tax payer this would have been a saving of 40% income tax.
However, from April 2017 this relief is being capped to the basic tax rate of tax and phased in over a four year period. Landlords of residential properties could see their income tax liability from rental profits increase considerably if they are a higher rate tax payer.
For the 2017/18 tax year 75% of the interest costs will be deductible with the remaining 25% allowed at basic rate. 2018/19 will see 50% of the interest deductible with 50% basic rate relief. 2019/20 it will be just 25% of the interest charges allowed with 75% restricted to basic rate relief. From 2020/21 only basic rate tax relief will be allowed on all of the interest costs incurred.
This applies to all individuals letting residential properties purchased with a mortgage but not corporate landlords or commercial properties.
For more information contact Caroline at CP Accountancy on 0116 230 3973.