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The government have begun the restriction on the amount of Income Tax relief landlords can get on residential property finance costs, such as mortgage interest, to the basic rate of tax. This is due to their belief that this method will make for a fairer tax system.
This will ensure that landlords with higher incomes no longer receive the most generous tax treatment. To give landlords time to adjust the government has introduced this change gradually from 6th April 2017 over 4 years.
Who is likely to be affected?
Individuals that receive rental income on residential property in the UK or elsewhere and incur finance costs (such as mortgage interest), excluding where the property meets all the criteria to be a furnished holiday letting.
General description of the measure
This measure will restrict relief for finance costs on residential properties to the basic rate of Income Tax. This will be introduced gradually from 6th April 2017.
Finance costs includes mortgage interest, interest on loans to buy furnishings and fees incurred when taking out or repaying mortgages or loans. No relief is available for capital repayments of a mortgage or loan.
Landlords will no longer be able to deduct all of their finance costs 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.
Landlords will be able to obtain relief as follows:
If you are a landlord and are unsure how these restrictions will affect you please do not hesitate to contact us at email@example.com
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