Landlord Income Tax Grab Enters New Phase

With the start of the 2019 - 2020 financial year, HMRC is set to take another bite out of landlord income tax relief on finance costs.

The 2019-20 tax year, which starts from April 6, marks the third stage of phasing income tax relief restrictions down to the basic tax rate on the cost of finance interest. 

All landlords paying finance costs are impacted, but those paying income tax at the higher rate or more (40%/45%) are hit the worst. 

From April 6, landlords can claim 25% of their finance costs as a property business expense. In 12 months, landlords' claims for property business finance costs end as a business expense. Instead, every landlord will receive an allowance of 20% of their finance costs to set off against income tax regardless of the rate that they pay income tax - down from 40% or 45% for top rate taxpayers. 

Finance costs for landlords include mortgage interest and interest on other loans, overdrafts or credit cards paid by their property business. 

The finance cost restrictions started in April 2017 as part of a tax grab by then Chancellor of the Exchequer George Osborne. 

Other tax moves included enhanced stamp duty, capital gains tax rates for landlords, and a change in how property profits were calculated. 

The tax changes affect finance costs for individual landlords - limited companies continue to set off finance costs against corporation tax.

Phasing in the finance cost restriction

Tax yearFinance costs deductible from rental incomeBasic rate tax reduction
2017 to 201875%25%
2018 to 201950%50%
2019 to 202025%75%
2020 to 20210%100%

Source: HMRC Read more about tax relief on finance costs and property profits      

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