The restriction of finance costs is going to be a huge issue for private landlords where the properties have been purchased with mortgages, especially if highly geared. For the time being, corporate landlords will be unaffected as interest is a deductible business expense.
Landlords will no longer be able to deduct all of their finance costs (including interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans) from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.
Deductions from property income will be restricted to:
- 100% for 2016-17 (as currently)
- 75% for 2017-18
- 50% for 2018-19
- 25% for 2019-20
- 0% for 2020-21 and beyond
Landlords with property financed by mortgages may have to pay more tax. It is also possible that tax may be payable even if the property makes a cash loss. An increase in interest rates will make matters even worse. Basic rate tax payers will be largely unaffected provided the higher profit resulting from the restriction of finance costs does not push them into the higher rate tax bracket. Higher rate tax payers with mortgage interest will be worse off.
If you are a Landlord based in the Bromley & Biggin Hill area area please call us if you wish to to discuss the accounting and tax aspects of your property portfolio