Restricting Finance Cost Relief for Individual Landlords



I rent out a property and I have heard that there are changes in the way relief is given on my qualifying mortgage interest deducted from my rental profits and this is being phased in over the next couple of years. Can you explain what the changes are and what this means for me as an individual?




There are new changes which came into effect in April 2017 to the way HM Revenue & Customs treat the deduction of qualifying mortgage interest on a property rented out by an individual. The first tax return that will be affected by these changes will be the return due for 5th April 2018 and all individual landlords who complete their own tax return will need to be made aware of these changes.


In the past HM Revenue & Customs allowed the full 100% deduction for qualifying mortgage interest incurred on a rental property owned by an individual. This is now being restricted as follows;


In the tax year 2017-18 the deduction from property income will be restricted to 75% of the finance costs, the remaining 25% being available as a basic rate reduction. In the tax year 2018-19 the deduction will be restricted to 50% of the finance costs and 50% given as a basic rate reduction. In 2019-20 the deduction will be 25% of the finance costs and 75% given as a basic rate reduction and in 2020-21 all finance costs will be given as a basic rate reduction.


These changes will make the calculation for working out the tax on your rental profits much more complicated and will also impact on the level of taxable income, which may in turn affect the level of income taken into account for the high-income tax, child benefit charge and tax credits etc.


The above changes do not affect those with any rental property that meets the criteria to be a furnished holiday let.


The advice above is specific to the facts surrounding the questions posed. Neither PKF-FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.


Get in touch with David Carr via email