Tue 07 Mar 2017
The new tax relief that landlords of residential properties get for finance costs will be restricted to the basic rate of Income Tax, this will be phased in from April 2017. The amount of Income Tax relief landlords can get on residential property finance costs will be restricted to the basic rate of tax. The changes will: affect you if you let residential properties as an individual, or in a partnership or trust change how you receive relief for interest and other finance costs be gradually introduced over 4 years from April 2017 Finance costs won't be taken into account to work out taxable property profits. Instead, once the Income Tax on property profits and any other income sources has been assessed, your Income Tax liability will be reduced by a basic rate 'tax reduction'. For most landlords, this'll be the basic rate value of the finance costs. Who'll be affected You'll be affected if you're :- UK resident individual that lets residential properties in the UK or overseas non-UK resident individual that lets residential properties in the UK individual who let such properties in partnership trustee or beneficiary of trusts liable for Income Tax on the property profits All residential landlords with finance costs will be affected, but only some will pay more tax. You won't be affected by the introduction of the finance cost restriction if you're a: UK resident company non-UK resident companies landlord of Furnished Holiday Lettings You'll continue to receive relief for interest and other finance costs in the usual way. What's included under the finance cost restriction The finance costs that will be restricted include interest on: 1- mortgages 2- loans - including loans to buy furnishings 3- overdrafts Other costs affected are: alternative finance returns fees and any other incidental costs for getting or repaying mortgages and loans discounts, premiums and disguised interest If you take a loan for both residential and commercial properties, you'll need to use a reasonable apportionment of the interest to work out your finance costs for the residential properties. Only the finance costs for the residential property business are restricted. This also applies if your loan was partly for a self-employed trade and partly for residential property.
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