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New Starter Checklist R&D Tax Relief

Changes to the taxation of Buy To Lets

February 12th, 2018 Posted by Accountancy 0 thoughts on “Changes to the taxation of Buy To Lets”

With effect from April 2017 the new Restricted Mortgage Interest Relief came into effect on BTLs.

This is where the interest on any form of mortgage/finance, which has been an allowable cost of the property in the past, is slowly being phased out over the next three years for those who are higher rate tax payers (40%).

What does this mean in reality?  For the tax year ended 05 April 2018 this means that only 75% of the finance costs will be an allowable deduction for all BTL owners, and the additional 25% is only allowable if you are a basic rate taxpayer.  However, the complication lies where the finance costs must be disallowed before calculating whether or not the tax payer is basic rate tax payer.  If, when 25% of the finance costs are disallowed, the tax payer is still in the basic rate bracket then all the finance costs are then allowable in the calculation of the taxable profits.

For the year ended 05 April 2019 this changes to 50% allowable costs, and for 05 April 2020 reduces again to 25%.  Therefore this means by 05 April 2021, that 100% of any mortgage or finance costs are wholly disallowable if you are a higher rate tax payer.

This may well have an impact on your tax charge, as well as being able to offset any residential property losses against other properties.  It is anticipated that one in five landlords will receive lower relief and therefore pay higher taxes.  Tax planning in advance is highly recommended.

The new rules only apply to individuals and partners who have residential rental properties.  It does not apply to Furnished Holiday Lets, commercial properties, property development nor companies.

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