Residential Landlords – Loan Interest Relief

12th July 2018

Residential Landlords

What is happening to my loan interest relief?

Residential landlords may notice a difference to their rental income tax calculations this year.

Back in 2015 new rules were introduced to restrict tax relief on loan interest and finance charges arising in respect of residential property lettings the rules are being phased in over a four year period and the first phase starts for the tax year just ended 2017/18.

What are the restrictions?

The aim is to restrict the tax relief given for loan interest and finance charges arising in connection with residential lettings to the basic rate of tax (currently 20%).

To lessen the overall impact and perhaps to allow residential landlords to rearrange their lettings finance models, the restrictions are being phased in over the next few years:-

  • For 2017/18 the restrictions apply to 25% of the costs;
  • For 2018/19 the restriction applies to 50%;
  • For 2019/20 the restriction applies to 75%, and
  • For 2020/21 all finance costs and loan interest relief will be restricted to the basic rate of tax.

Residential landlords who only pay tax at the basic rate should not be affected by the changes.

These changes bring another level of complexity and potential cost to residential landlords. By the year 2020/21 some landlords could see all rental income profits used up in tax charges and effectively they will be funding the Exchequer for owning rental property.

Paul Southward tax director at Keens shay Keens limited says “Residential Landlords need to understand how the new rules will impact on the lettings business models.  This will help them understand what changes may be necessary to address this issue”.  It is for this reason that Paul has prepared a detailed illustration of how the new rules will be applied from the last tax year ended on 5th April 2018 and going forward to 2020/21.

Paul has made his illustration available as handy download that can be accessed here:

Residential Landlords – loan interest relief

If you are a residential landlord and want to know how you can maximize your tax savings contact Paul Southward.

Paul Southward