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Preparing for the loss of buy-to-let tax relief

Time is quickly running out for buy-to-let landlords currently claiming income tax relief on mortgage interest payments. From the 6th April 2017, residential landlords will face new restrictions for income tax relief for financing costs for residential properties. Until now, individuals buying property to let are able to claim relief on their mortgage interest payments at their marginal rate of tax. For example, individuals paying the basic rate of tax get 20% tax relief, whereas those within a higher tax bracket can claim up to 45%.

Under the new restrictions, rental profits and taxable income will be assessed without considering the landlord’s mortgage interest payments, resulting in Income Tax liability being reduced only by a basic rate tax reduction. Interest on mortgages, loans in relation to the property (including those to purchase furniture) and overdrafts will all fall within the scope of financial costs that will be subject to the restriction.

The new restriction will have a four year phasing in period and will affect all UK residents letting residential property in the UK or overseas as well as those letting such property in a partnership structure. Non-UK residents letting in the UK will also suffer from the restrictions, as will trustees or beneficiaries of trusts subject to Income Tax on property profits. Those escaping the change are UK and non-UK resident companies and landlords of furnish holiday rentals.

The gradual enactment process will enforce the changes and will apply to 25% of the interest in 2017/18, 50% in 2018/19 and 75% in 2019/20. By the 6th April 2020 all tax reductions will be withdrawn, leaving 100% of landlords’ interest being subject to the new rules. 

If you are a Landlord currently paying the basic tax rate you will see no change come April. The same cannot be said for those paying higher rates of tax who are set to lose much more in mortgage interest payments.

It is vital to be proactive in preparing for the changes set to take place in the coming months. Landlords should be discussing possible tax saving methods with their lawyer and financial adviser in order to be prepared for the financial implications of the restriction.

Contact Dallas McMillan Today

If you are concerned with the above issue, or have any other queries regarding legal services for individuals, please contact our highly skilled solicitors on 0141 413 9248 or via our online contact form.

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